Commercial Basis explores how technology, branding and demographic preferences are shaping office and retail real estate in New York City. As these forces break down the barriers from where we live to where we work and shop, Lead Commercial Specialist Alex Cohen assesses the impact on real estate values and opportunities.
In less than five years, Uber and its competitors transformed the way many of us choose to get around New York City. Likewise, they disrupted the business and leisure traveler’s attachment to rental cars. Now much attention is focused on how driverless cars will inevitably transform urban and suburban life. But whether A.I.-equipped cars become widespread in five years or 20 years, the continued explosion of ride-sharing (with or without drivers) will rapidly reorder the place of the automobile in our lives. What will be the impact of this mobility revolution on how our region’s real estate is valued? What opportunities and challenges does it present?
BMW recognizes that its future is not primarily as a seller of cars but as a ride-sharing company (www.reachnow.com). ReachNow is available in Brooklyn and many European cities. The economic and flexibility rationale for paying for a shared vehicle by the minute, hour, mile or day with no need to park, insure or maintain the car will probably be too strong for all but the most enamored urban car-owning residents, commuters or visitors to withstand. In light of the fact that the average vehicle in the United States is parked 95% of the time, ride-sharing obviously reduces the need for parking and will continue to reduce traffic and congestion.
Ride-sharing and the City
Before the popularization of the automobile, cities like New York didn’t look significantly different. Buildings were not as tall and there was not as much segregation of uses on the street as there is today. I don’t think cities will change physically as personal car use declines.
However, the long-term outlook for Manhattan parking garage owners and operators, who have enjoyed one of the most lucrative businesses in real estate history, is not positive as car sharing displaces car ownership and the demand for parking. Corporately-owned ride sharing vehicles will require storage and servicing centers during lower demand periods, but in all likelihood, these will be located where real estate is not as expensive.
The Red Hook Effect
In New York City, in neighborhoods like Red Hook that are generally inaccessible by public transit, historically residential real estate has been priced to reflect this limitation. But with attractive housing options and amenities like waterfront parks, real estate should appreciate in value at a faster rate than other areas, as ride-sharing overcomes inconvenience.
The earliest suburbs (like Bronxville, New York) developed as “railroad suburbs” before the popularization of the car. These appealed to residents with professional and commercial ties to the city, but with a preference for and ability to live in a private home that had a train station as well as neighborhood retail and services within walking distance. It was the automobile that helped spawn the post-war explosion of sprawling suburbs in which all activity outside the home is car-dependent. These communities now face the greatest planning and development challenges. For example, a suburban big box shopping mall can devote 75% of its land to parking – most of which may become superfluous as driving habits change.
While urban living has gained popularity among baby boomers and millennials at the expense of the suburbs, I don’t expect ride-sharing to dramatically change individuals’ or families’ preferences for one lifestyle over the other. But our already overstretched railroad infrastructure will be burdened severely as ride-sharing eliminates the expense and annoyance of train station parking. Train ridership from the suburbs into and out of New York City will inevitably increase
The current struggles of retail are well-publicized. The growth of ride-sharing may offer an opportunity for some retail to prosper and retail real estate to appreciate. Ride-sharing should make unique retail destinations with an experiential quality more attractive. For example, I foresee growth in customers (and sales) at the Woodbury Premium Outlets, which is unmatched among outlet centers nationally for its inclusion of luxury brands. Woodbury Commons is located 50 miles north of Manhattan, but ride-sharing will make this destination more accessible from throughout the metropolitan area and perhaps more attractive as an alternative to clicking on Gilt.com.