Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/873170
62 • September 2017 • Western Real Estate Business www.REBusinessOnline.com CHANGES IN TRANSPORTATION ARE REROUTING COMMERCIAL REAL ESTATE Even in car-loving cities like Los Angeles, the personal automobile is no longer the only transportation option, leading developers to rethink their future plans to accommodate for ease of mobility. By Lea Overby R apid ad- vancements in the trans- portation sector are changing the way real estate profes- sionals think about the future of their properties. De- velopers, lenders and investors are all concerned that emerging trends like ride-sharing companies and driverless cars may result in the need to repurpose and densify their real estate. This can result in significant costs. Build- ings without strong connectivity to transportation systems could be- come functionally obsolete. Millen- nials and younger generations, with their rapid adaptation of new tech- nologies, may pave the way for the changes that are yet to come as the lines between suburban and urban living begin to blur. Once seen as both a necessity and a status symbol, a personal car is quickly becoming less essential, with ride-, car-, and bike-sharing compa- nies, improved public transporta- tion, and driverless cars all limiting the need to have our vehicles parked nearby. Based on the Department of Transportation and population data, Advisor Perspectives noted the number of miles driven per person is 5.4 percent below its 2005 peak. The youngest Americans of driving age are driving less as they move to urban centers, and they often prefer other transportation options. The number of high school seniors with a driver 's license continues to decline, according to the U.S. Public Interest Group, while census data shows the portion of 16- to 24-year- olds driving to work has declined by 1.5 percentage points between 2006 and 2013. During this time, the use of public transportation has in- creased. Millennials are also more likely to live in urban centers. Sub- urbs may become more appealing as Millennials age and form families, making them more likely to seek out neighborhoods with good public transportation as they view driving as only one of several options. California and the Southwest are on the cutting edge of these trends, given the high density of technol- ogy companies, significant conges- tion issues and population of Mil- lennials who are eager to embrace new concepts. Uber Technologies is developing a new campus in San Francisco's Mission Bay, and Apple has confirmed it is working on the creation of autonomous vehicles. Waymo, Alphabet's self-driving car company, reported 635,000 autono- mous miles on California public roads for the 12 months that ended Nov. 30, 2016. Local and state gov- ernments are also acting to improve transportation options. For exam- ple, Los Angeles voters approved a measure last year to increase sales taxes to fund $120 billion in transit operations over the next 40 years. Even as commercial real estate ex- perts struggle to handle the rise of e-commerce, the industry must pre- pare for the next round of disruptive technologies. These changes in driv- ing patterns may increase densifica- tion, especially around transit hubs. As the demand for parking spaces drops, open lots can be converted to other uses, possibly lowering real estate values. This shift away from driving may have varied effects across the property types. Morningstar Credit Ratings high- lights some of these effects below. Office Although suburban areas may seek to improve transit options through driverless shuttles and the like, most transit networks to urban centers are better developed, which could con- tinue to make cities more appealing to office tenants. Businesses will find that access to public transit is a com- petitive advantage in attracting and retaining employees. Suburban office campuses, which were developed to take advantage of the flight from cit- ies and are often surrounded by large parking lots, may find themselves in a more challenging environment as both businesses and workers lose in- terest. Multifamily Cities and municipalities are al- ready starting to rethink parking requirements for multifamily de- velopments. San Francisco's SFPark initiative, which adjusts street park- ing rates in response to demand, has made it more expensive to bring cars into the city. This could lead to addi- tional transit-oriented development near public transportation hubs in outlying areas of cities and inner- ring suburbs. Retail The recent turmoil in the retail sector highlights the need for rede- velopment of much of the existing stock. Property owners are search- ing for ways to attract foot traffic by adding untraditional tenants, entertainment options and addi- tional dining options. Cities have also reduced traditional parking ra- tios to allow higher density, which has supported more mixed-use con- cepts. Traditional retail centers may also benefit from converting sel- dom-used parking areas into more productive uses. Westfield's rede- velopment of its Promenade mall in Woodland Hills, Calif., may indicate the future of retail. The company plans to create a walkable, bikeable, and transit-oriented mixed-use dis- trict with office, hotel, housing and retail options, which will appeal to people across all generations. The interconnectivity of the Inter- net is spilling over into transporta- tion. Changes in our modes of travel will ultimately have broad implica- tions for commercial real estate. The sector is typically seen as a multi- year investment. Lenders, owners and developers must be aware of the possible cost associated with creating and adapting properties for maxi- mum efficiency and accessibility by foot, bike or public transportation. Lea Overby, Managing Director of CMBS Analytics and Structured Finance Research at Morningstar Credit Ratings Overby