Commercial Investment Real Estate September/October 2019 | Page 36

DRIVING
INNOVATION
Disruption in transportation, namely autonomous vehicles,
will impact commercial real estate
K
eeping pace with and understanding how techno-
logical innovations will shape the future is both an
essential and challenging component of developing
a successful, forward-thinking investment strategy.
Evaluating how today’s technology disruptors might impact
life in the future enables investors to better frame the risks
and opportunities for real estate associated with each innova-
tion. Given the expeditious pace of technological innovation,
this practice is more important now than ever.
Hundreds of billions of dollars have already been invested
in emerging technologies with the potential to impact where
we work, how we work, where we live, and how we purchase
and consume goods and services. These technologies could
affect all types of commercial real estate, too.
Invest Where Innovation Is Creating,
Not Constraining, Jobs
While it is interesting to dig into the whiz-bang capabilities
and technical aspects of new technologies, its impact on jobs is
most profound. Additionally, while it is difficult to know the
exact impacts of the technologies on where and how we live,
work, and play, we do know that markets populated with the
companies creating technology will see employment gains,
while those populated with industries disrupted by the tech-
nologies will lose employment. Accounting for this variation
in impact on employment across markets should be a primary
consideration in shaping investment strategy.
The Bay Area and Seattle are established tech hubs that
will continue to flourish and maintain their status as innova-
tion centers. The Bay Area is the dominant cluster, bar none,
for companies pioneering disruptive self-driving technology.
Uber, Alphabet’s Waymo unit, Tesla, Apple, and GM’s
Cruise are all based in San Jose or San Francisco.
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September | October 2019
As these technologies reach high levels of adoption, com-
panies will grow as their hiring needs become more substan-
tial and availability of tech talent becomes more difficult to
secure in these established hubs. Major markets with huge
labor pools such as New York, Los Angeles, Washington,
D.C., and Chicago have been able to attract the presence
of larger tech firms like Google, Amazon, Microsoft, and
Apple, along with smaller markets such as Austin, Portland,
and Denver.
The flipside to this technology-driven employment growth
is employment destruction. Self-driving vehicles could revo-
lutionize the transportation industry, potentially eliminating
broad swaths of jobs. Many traditional distribution markets
have higher concentrations of trucking jobs, making these the
most vulnerable in broad industry adoption of self-driving
trucks. This likely wouldn’t materially impact warehouse
demand in these markets, given that many are distribution
hubs serving broad geographic areas. The net effect on local
employment and wages could impact other property types
within these markets; a loss in transportation jobs means a
loss in local services jobs.
Additionally, increased warehouse automation and markets
with elevated trucking employment concentration would at
best face a shift in employment composition and at worst,
outright reduction. Markets having positive exposure to self-
driving cars via programming and engineering jobs are also
the least exposed to the types of transportation jobs that are
potentially at risk of automation.
There are two broad categories of potential commer-
cial real estate disruptors. The first is the group of startups
that are actively vying to disrupt the commercial real estate
industry itself. The second is the group of innovations occur-
ring outside of the industry that has the potential to disrupt
COMMERCIAL INVESTMENT REAL ESTATE
by Stanley Iezman, Christopher Macke, and Maximilian Saia