Parking In The AI Future

The Real Estate Espresso Podcast

Parking In The AI Future

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Welcome to the Real Estate Espresso podcast. Your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show, we’re looking a little further into the future, onto one of the impacts of artificial intelligence on the design of apartment buildings. The most obvious medium-term impact of AI is going to be on the automotive industry.

Some people prefer to drive a car because they don’t want the experience of public transit. It’s noisy, it’s crowded. You can’t have a private phone conversation on a bus or the subway. The bus doesn’t take you where you want to go. It might take you close by, but not exactly where you want to go. Even in places where traffic congestion is high and parking’s expensive, people prefer to drive over the alternatives.

The cost of a taxi might be expensive, but depending on how often you drive and how far you drive, even using a taxi service today could be more cost-effective than owning your own vehicle. These days, a ride-sharing service like Uber or Lyft is typically costing you between two to three dollars a mile, or between a buck twenty-five and a buck eighty-seven per kilometer. Much of that is linked to the wages associated with having a human driver behind the wheel.

If you take a typical leased vehicle that might give you, say, 15,000 miles a year and that lease might cost you, say, $600 a month, maybe you have a similar amount to pay in insurance. So if you’re paying $2,000 a year in fuel, add all of that up, you’re spending about $16,400 a year to drive those 15,000 miles. Your cost per mile for that vehicle, excluding maintenance, is about $1.09 a mile. Now, if you have to pay for parking, you’re probably going to break $1.20 or $1.25 a mile.

On the other hand, if you can save time because you don’t need to look for parking with a robo-taxi, that might be a competitive solution. Some recent numbers suggest that robo-taxis will cost between 25 cents and 35 cents per mile in mass deployment. That is a significant saving over car ownership.

The other important question will be the balance of supply and demand. If you’ve got to wait too long for a robo-taxi to show up, then people won’t use it. But if the supply is sufficient to keep the wait times low, then robo-taxi adoption will change the entire auto industry. There will be no reason to own a car.

For those really long road trips, it would be cheaper to rent a car. That would make more sense. But for trips within the city, a robo-taxi would be preferable to owning a car for many people, especially so you don’t waste time looking for parking.

So if that’s true, then the robo-taxi would be cost-competitive even with public transit, with all of the advantages of a dedicated private ride to your destination. But more importantly, it would be cost-competitive with owning your own private vehicle.

Over the medium term, this could change the demand for parking in general. We’re talking lower need for parking in the apartment buildings, lower need for parking in shopping centers, lower need for parking in sporting events, and yes, lower need for parking at the office.

Parking is a loss leader in the design of virtually any building, especially apartment buildings. Parking is also the limiting factor in density that’s possible in most apartment projects. So for example, let’s say you need two cars for every apartment, then the parking area will determine the amount of building area. In fact, here’s a very simple calculation.

Imagine for a moment that your average apartment is 600 square feet, and if you have two parking spaces for each apartment, then each parking space will consume about 300 square feet on average when you take the shared drive aisle into account. The building gross floor area is going to be nearly identical to the amount of parking area. And if that parking area is underground, or even if it’s above-ground structured parking, the cost of parking will almost double the cost of the project.

Now, if you’re willing to pay $2,000 in rent for an apartment, you’re only going to pay a very small extra fee for parking. You’re not going to spend $2,000 a month for the apartment and then another $2,000 a month for parking. The return on investment clearly for the apartment level cannot be justified on the basis of the extra rent for the parking space alone.

So the question to think about is the penetration of robo-taxis and how quickly will robo-taxis reduce demand for parking spaces? There’s a wide range of forecasts for robo-taxi penetration. Personally owned vehicles sit idle for more than 90% of the time. If robo-taxis are widely used, the same number of passenger trips could be satisfied with a lot fewer cars, maybe five times fewer cars. With fewer cars, land that’s dedicated to parking could be repurposed.

That will drive down the value of land for parking, but increase the value of that parking space for redevelopment. And we’re seeing it already with reduced demand for office space in the downtown core of many cities. The parking associated with that office space is underutilized in a lot of cases. Unfortunately, that’s not the case in my home city, but I can tell you that in other cities, like for example Houston and Denver, there are very large parking structures that are vastly underutilized. That’s happening in the current market without the introduction of robo-taxis. So this is a preview of what’s to come.

As you think about that, have an awesome rest of your day. Go make some great things happen. We’ll talk to you again tomorrow.

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