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Autonomous Vehicles – How will they transform the GCC Real Estate Sector?

Marmore Team

13 March 2018

The transport industry is on the cusp of another major breakthrough as Autonomous vehicles are expected not only to revolutionize the way we travel, but also the way we live. Billions of dollars have already been invested in pioneering the technology as well as equipping infrastructure to support it. Going by the trends, self-driven cars may soon be a common sight on roads in the near future. This disruptive change, which is expected to be a milestone for the auto industry, will also have implications on several other sectors. Real estate and infrastructure development is expected to be one of them.

Beyond the obvious benefits of improving road safety, reducing inefficiencies in usage of vehicles and also mitigate traffic congestion, their inception would also change the dynamics of the real estate market. The perception of real estate asset value and urban development patterns would change as we start to embrace this technology.

Autonomous vehicles – Are they the future?
History insists that when a technology has both utility and presents an economically compelling case, it is highly likely to be adopted. In an age which is seemingly dictated by technology, adoption of self-driving vehicles looks inevitable. Despite the heavy investments required, the economics is expected to be in favor of self-driven vehicles in the long run. Changes are expected to be gradual by starting with vehicles having low levels of automation in controlled environments and then reducing human intervention and opening them up to larger environment as time goes by.

By 2035, more than 12 million fully autonomous vehicles and 18 million partially autonomous vehicles are expected to be sold per year globally. Their market share by the end of 2035 is expected to be 25% of the new car market.

However, the main challenge pitted against them is the development of infrastructure and necessary software to enable large scale implementation. Testing is already underway with companies like Google working on algorithms to make fully autonomous vehicles a reality.

Impact on the Real Estate Sector
The Real Estate and Infrastructure development space could undergo a transformation due to the emergence of self-driving vehicles. The pricing mechanism of real estate assets and the way in which communities are developed would see a major change.

The key factor in determining the price of real estate asset in today’s market is its location and the availability of amenities. As the adoption of self-driving vehicles increase, we can expect the prices of real estate assets to have lesser correlation with the proximity of an asset to the center of a city.

Slowly, the need for people to have homes closer to their workplace or prime locations would reduce as traffic management would become more efficient thereby reducing travel time. On-time arrival and pickup would be possible on a more consistent basis through Artificial Intelligence. As travel time reduces, the proximity to a prime location will not have the impact it once had.

Autonomous vehicles would also pave way for more efficient usage of parking space. The demand for parking space would reduce as cars would have the capability of dropping people at their destination and parking themselves. This would save up a lot of real estate assigned for parking purposes as multiple single-level parking lots would be replaced by a single multi-level parking lot. The concept of automated multi-level parking could save further space by incorporating refueling stations/charging stations and maintenance facilities. This reduces the need for dedicated fuel stations.

As cars would not need any manual intervention, it would additionally open up the option of using the car for other commutes instead of lying idle in the parking lot. This would reduce the need for people to have their own cars as car-pooling during idle time would be seen as a more economically viable and hassle free alternative. All these factors put together will reshape the way in which communities are being developed and bring price uniformity. The importance of having the asset in prime locations will slowly diminish while factors such as size and quality of amenities available will take precedence.

In GCC context, this bears a higher significance considering the availability of land. Barring Saudi Arabia and Oman, land remains a scarce resource for all GCC countries. The real estate freed up by replacing parking spaces and fuel stations could be used for much more productive purposes. Pricing of land throughout the country would have a degree of uniformity; trigger the development of underdeveloped areas which would otherwise not be desirable due to its distance from prime locations of the city.

Are GCC countries prepared for autonomous vehicles?
The UAE has been at the forefront among GCC countries in terms of readiness to adopt autonomous vehicles. The UAE ranks 8th globally ahead of developed countries Japan and France according to KPMG’ Autonomous Vehicles Readiness Index (AVRI). The Index evaluates the country’s ability to adopt self-driving vehicles based on several factors such as availability of electric vehicle charging stations, autonomous transport technology R&D, the public’s willingness to adopt the technology, and the regulatory environment.

Table – Autonomous Vehicles Readiness Index Rankings

RankCountry
1Netherlands
2Singapore
3United States
4Sweden
5United Kingdom
6Germany
7Canada
8UAE
9New Zealand
10South Korea

Source: KPMG

According to Dubai Autonomous Transport Strategy, the city sets a target of one quarter of the total cars on road to be driverless by 2030. The initiative is expected to bring annual revenue of AED 22 Bn through reduction of transportation costs, emissions and accidents.

Although other GCC countries might not be in the same stage as the UAE in terms of readiness, they have acknowledged the role of autonomous vehicles being an integral part of the future and started taking steps towards their adoption. Saudi Arabia has been looking at incorporating Autonomous vehicles as part of its USD 100 Bn King Abdullah Economic City (KAEC) project.

Outlook – Embracing change
As the arrival of self-driven vehicle seems imminent, real estate players need to be aware of the implications that they could bring. Any disruptive change is expected to alter the status quo and present an array of challenges to the incumbent. However, challenges could always be perceived as opportunities. Similarly, Real Estate developers need to adapt and modify their development projects in ways that would be accommodative of self-driven vehicles. The inception of higher levels of autonomy in vehicles would bring the requirement of building sophisticated infrastructure to support them. This would also be a key benefit for the players in the infrastructure space. Commercial real estate development would now not be saturated in prime locations alone. As travel distance and time taken for commute loses significance, it creates demand for real estate in non-prime locations presenting more opportunities for real estate development.

This scenario would be highly applicable for GCC countries as most of them have limited land availability. Technologies such as electric and autonomous vehicles would help their problem of tackling pollution and also free up land resources to be utilized for more productive purposes. With the UAE leading the way, other GCC countries have also realized the importance of autonomous vehicles and started taking steps to accommodate them in future. With these impending changes to be implemented in due course of time, real estate sector will witness a significant change and the industry as a whole is also expected to adapt likewise.

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