Commercial Investment Real Estate September/October 2019 | Page 38

centers, thanks to increased sprawl. Investors who bet heavy on urban infill will miss a wave of industrial demand catering to such sprawl. Self-driving trucks will be a compounding factor, making it feasible for companies to stretch their logis- tics networks by taking advantage of cheaper, more plentiful land for warehouses. More broadly, transit-oriented assets will suffer as people rely less on public transit. The automated nature of self-driv- ing technology and its widespread application (that is, trucks, ships, and rail) will eliminate or transform millions of jobs, disrupting the entire U.S. labor market. At least that is the conventional wisdom. But how sure are we that any of these scenarios are likely to play out? It’s impor- tant to note that these are all just estimations and forecasts. There is still a great deal of dispute over the timeline of self- driving rollout, regulatory adoption, and consumer adoption. The prevailing sentiment in the industry and among futur- ists is that it will change the values and best uses of real estate across the board. That may be the case, but the timing is highly uncertain. Ride-Sharing A lot of conflicting information exists on the impacts of ride-sharing on the demand for public transit. Much pre- vailing analysis calls for a future scenario where increased ride-sharing dramatically reduces the need for public transit, in turn reducing the value premium enjoyed today by transit- oriented developments (TODs). Two reasons are fueling much of the negative sentiment. First, at a high level, public transit ridership is falling in the U.S. While the fear is that ride-sharing has been cannibalizing public transit ridership, this narrative doesn’t add up when you take a closer look at ridership growth. Ridership declines in the early and mid-2000s went along with waning public transit participation through the last decade. Uber didn’t launch until 2009 and Lyft came in 2012, while meaningful adoption occurred even later. More recently, a 2017 paper from the University of Califor- nia Davis Institute of Transportation Studies made headlines for identifying a relationship between increased ride-sharing use and decreased transit ridership. The paper reported that ride-sharing increases were associated with major declines in transit ridership, but the results were more modest and mixed. The study found that when survey respondents increased their use of ride-sharing, they decreased their use of bus and light rail services by 6 and 3 percent respectively, while com- muter rail usage actually increased 3 percent. The study also acknowledged two other key points. The first is that 49 to 61 percent of ride-hailing trips would not have been made at all by any other means of transportation, and that ride-hailing will likely contribute to more vehicle miles traveled in the large cities surveyed. This means more overall trips and more traffic in major cities, which would 36 September | October 2019 increase the relative appeal of public transit as riders seek to avoid worsening congestion. Other similarly designed survey studies found ride-sharing and public transit to be comple- mentary, with an increase in use in one leading to an increase in use in the other. The most recent and cutting-edge research, published in June 2018 by researchers at McGill University in Montreal, offers further explanation for declining ridership: Declines resulted from reductions in bus and train routes as well as deferred maintenance across transit modes, making adop- tion less compelling for riders. The presence of ride-sharing or bike-sharing was insignificant. It’s no surprise that two of the cities where public ridership grew in 2015 to 2016 were Houston and Seattle, both of which have undergone bus net- work overhauls. No matter how automated cars become, they will still take up a lot more space per passenger than a bus or a train. This scale and the public nature of buses and trains lower the cost per rider significantly, making them an ideal choice for lower-income workers. If planners can maintain and modernize existing public infrastructure, public transit will continue to be viable into the future. Uber and Lyft aren’t eliminating the viability of public transit and, therefore, transit-oriented development. A well- designed and well-located TOD, especially in larger metros, derives much of its value from factors that might have nothing to do with proximity to transit. A 2017 research note from CBRE Econometric Advisors analyzing the factors driv- ing multifamily rent premiums in the Denver market found that proximity to light rail had no statistical significance on rent levels and that TOD assets tended to derive their rent premium because they were newer, were more proximate to the central business district, and tended to have more retail density within a half-mile radius. Conclusion Promising new technologies often create bold proclama- tions. Both pessimistic and optimistic prognostications can create irrational exuberance or unfounded fear. The same is true with the current crop of promising new technologies. Technology’s greatest impact is and will be on the composi- tion of jobs. Rather than fretting over doomsday headlines or fairy tale outlooks related to the next big thing, CRE pro- fessionals must understand the employment composition of the markets. In the end, areas with companies creating the disruptive technologies will thrive, while those subjected to negative employment effects will not. Stanley Iezman is chairman and CEO of American Realty Advisors. Contact him at [email protected]. Christopher Macke is managing director of research and strategy of ARA. Contact him at [email protected]. Maximilian Saia is vice president of research and strategy. Contact him at [email protected]. COMMERCIAL INVESTMENT REAL ESTATE