AI: The Road Ahead for Commercial Real Estate

Introduction

The abilities of Artificial Intelligence (AI) for analysis and carving new avenues of demand have expectations running high among developers, investors, and occupiers in commercial real estate (CRE). Its short- and long-term effects are expected to range from innovations in revenue models to the emergence of new markets.

Indeed, according to a recent survey, around the world, over 72% of real estate investors and owners are committing or planning to commit to AI-enabled solutions. Organizations that understand and embrace this shift brought on by AI and ML could gain a significant advantage over their competitors.

In this article, Silverskills provides insights into how AI in commercial real estate will disrupt the industry.

How are AI and ML Reshaping Commercial Real Estate?

• Personalization and RecommendationsAI in the CRE industry can improve personalization and offer recommendations to both investors and tenants based on their unique preferences, such as location, amenities, and cost. It accomplishes this through analyzing market trends, historical data, and individual preferences.A great example of an AI-powered app for CRE is Reonomy, which offers personalized property recommendations and insights to commercial real estate investors and brokers. By analyzing vast datasets, including transaction history, ownership records, and property characteristics, Reonomy delivers customized opportunities that align with the users’ investment criteria, thus enhancing decision-making processes.Furthermore, generative AI (also called gen AI) can help individuals make more informed and confident decisions by providing a chat-based experience. AI-powered virtual assistants and chatbots can engage with clients in real-time, providing personalized recommendations, answering queries, and guiding users through various stages of the real estate transaction process.
• Population Analysis and PredictionIn the CRE industry, success springs from being able to envision possible changes in the local landscape.AI is transforming the sector by advancing population analysis and prediction capabilities. This advancement allows for a deeper understanding of demographic shifts, consumer behavior, and urbanization trends, which are crucial for making informed investment, development, and operational decisions.AI-driven tools and platforms analyze vast datasets, including census data, social media trends, migration patterns, and economic indicators, to forecast population growth or decline in specific areas.

  This enables real estate developers, investors, and city planners to anticipate demand for residential, commercial, and mixed-use developments. By seeing where populations are growing or shrinking, stakeholders can choose locations for new projects, adjust marketing strategies, and optimize property management approaches to align with the demographics of the future.

  Furthermore, AI enhances the granularity (that is, the level of detail or scale) of population analysis by segmenting data based on age, income levels, lifestyle preferences, and other demographic factors.

  This level of detail allows commercial spaces to be tailored to the specific needs and preferences of the target population. Consider age-friendly living spaces or retail environments that cater to the shopping habits of local consumers.

  The future-driven approach offered by AI maximizes the potential for successful investments and helps ensure the sustainability of projects.

• Powering Smart Buildings & StructuresAI and cloud computing are increasingly being used to build smart structures and buildings, particularly in efficiency, managing energy use, and improving the workplace experience for employees.For instance, with AI/ML-infused cloud technology, facilities management can be conducted in a smarter manner.Furthermore, AI can be integrated into existing technologies, such as drones and robotics, to view different parts of a structure to improve communication and feedback.

  As an example, the use of AI-powered solutions in the Empire State Building in New York led to carbon emissions being reduced by over 300 metric tons.

• Better Risk MitigationWith AI, stakeholders can now predict, assess, and manage risks more effectively, ensuring better decision-making and investment outcomes.One of the key areas where AI contributes to risk mitigation is via advanced market analysis.AI algorithms can process vast amounts of data from diverse sources, including economic indicators, market trends, and geopolitical events, to forecast market fluctuations.

  AI enhances due diligence processes through automated analysis of legal documents, zoning regulations, and compliance requirements

  This allows investors and developers to make informed decisions, minimizing the risk of entering declining markets or overvalued segments.

  Furthermore, AI-driven tools are transforming property valuation by providing more accurate and dynamic assessments.

  By analyzing historical transaction data, current market conditions, and property characteristics, AI models offer precise valuations, helping to avoid investment in overpriced assets or areas prone to depreciation.

  Additionally, AI enhances due diligence processes through automated analysis of legal documents, zoning regulations, and compliance requirements. This not only speeds up transactions but also significantly reduces the risk of legal challenges or penalties.

  Lastly, risk mitigation and proactive maintenance are enhanced by AI’s capacity to recognize potential environmental risks and forecast equipment failures through building sensor data analysis.

  This is especially relevant in the case of climate-related disasters, which are an increasing risk. AI in commercial real estate can help protect against these risks, offering proactive shielding against hard-to-predict hazards.

• Investment Opportunities and Revenue StreamsAI in the commercial real estate industry is increasingly being used to analyse markets and properties for investors and to hasten the pace of transactions. It can provide valuable recommendations that are in line with investors’ risk tolerance and objectives, as well as market conditions.Furthermore, co-working operators are discovering new revenue streams via AI. By collecting and analyzing data, AI algorithms can help predict demand for space to plan space utilization and optimize energy use. This further can pave new avenues for expansion.For example, BuildingMinds offers an AI-powered platform that can identify underutilized spaces that can be repurposed into revenue-generating areas, such as co-working spaces or short-term lease units.
• Property ValuationVarious factors influence property value, including but not limited to supply and demand, location, capitalization rates, comparable properties, replacement costs, and market rents.Manually calculating these variables can be time-consuming and complex. This is where AI steps in, streamlining operations by reducing the time spent on manual analysis and data entry.AI performs the following in property valuation:
  • Automatically gathers data from various sources
  • Quickly analyzes large data sets
  • Generates detailed reports, thus supporting informed real estate investments and decision-making
  • Evaluates property value based on factors such as facilities and location
  • Offers up-to-date assessments by adapting in real-time to market changes

  However, artificial intelligence and commercial real estate are not necessarily a match without limitations or challenges. Depending solely on an algorithm to make decisions can be risky. Ultimately, AI should go hand-in-hand with a human touch.

• Changing Roles of Brokers and AgentsThe roles of brokers and agents in the CRE sales process are being transformed by the increasing demand for online listing platforms.Previously, they used to assess properties and present them to buyers. Now, however, more and more buyers are independently assessing listings, as the use of AI has proliferated in the CRE industry.It is important to note that the use of AI in commercial real estate does not automatically render brokers and agents obsolete. There are multiple reasons why buyers may need to hire professionals, from negotiations to viewing properties.
• Data Center DevelopmentAI is indirectly creating new demand in the CRE industry.For example, data center development has been pushed center stage due to the immense (and increasing) data storage and processing needs for AI. Indeed, the number of hyperscale centers in development is expected to double in 2024.

  Companies are being compelled to invest heavily in data center infrastructure.

  Companies are being compelled to invest heavily in data center infrastructure, either by developing their own facilities or leasing space in existing ones.

  This trend is creating lucrative opportunities within the CRE industry. Developers and investors are recognizing the potential for long-term leases and high returns associated with data center properties.

  Furthermore, the geographic diversification of data centers, driven by the need for data sovereignty (that is, the authority of a country or jurisdiction to control data generated within that country’s borders), is spreading these investment opportunities across various regions.

Conclusion

While AI and ML are transforming the commercial real estate industry, it is important to recognize that, in the near future, they are tools that will supplement – and not replace – the human workforce.

Furthermore, while embracing AI is the way forward, firms must understand its limitations. Asking the right questions to fully make use of AI in commercial real estate will be crucial.

Silverskills offers technology-led commercial real estate services that create new growth opportunities by allowing you to focus on your core services. We cover the entire asset lifecycle across property types.

Contact us now to get started.