At the closing session of the Society of Industrial Realtors (SIOR) Spring Conference in Montreal this year, self-described economic futurist Andrew Busch delivered a talk on “The Future Economy: Growth Opportunities.” Toward the end of his session, Busch delivered this bold statement on the impact that artificial intelligence will have on business to an audience comprised mainly of CRE brokers:
“This thing is powerful. It’s amazing, and it will change the world very shortly, ladies and gentlemen,” Busch asserted. “I’ll make this prediction: (In the future) there will be two kinds of companies. Those that use AI, and those that are out of business.”
While that may be a bit hyperbolic, one thing is sure: those who do not keep up with the tools of technology are doomed to fall behind their competitors or fail outright. Think Toys R Us or J.C. Penney, two long-established retailers that declared bankruptcy in 2017 and 2020. The collapses were partly due to the failure to recognize the importance of adapting to an online model. The retailers have since rebounded to some degree but have lost their competitive edge to tech-savvy retailers like Walmart, Target, Costco, and the behemoth that is Amazon.
AI and CRE
As we’re often reminded, commercial real estate has been notoriously slow to embrace innovation and technology. Many residential real estate agents, who are typically further ahead of the curve with technology adoption than their CRE counterparts, have already been reaping the benefits of AI – using Bing Chat and ChatGPT chatbots to write property listings for some time now.
To answer the question, “How Will AI Impact Commercial Real Estate?” we turned to an AI application powered by the OpenAI-created large language model (LLM). We tried both Bing Chat and ChatGPT and found the content to be similar, but we went with the ChatGPT answer because it provided a more in-depth response (see below). For those considering trying the application for themselves, be advised that ChatGPT requires you to register (email, phone number, date of birth) at chat.openai.com before using the application, while Bing allows registered Microsoft users to access it without a sign-in.
Chat GPT Response
Artificial intelligence (AI) is poised to have a significant impact on the commercial real estate (CRE) industry in several ways:
- Property Valuation and Market Analysis: AI can process large volumes of data from various sources, such as property records, transaction history, demographics, and economic indicators, to provide more accurate property valuations and market analyses. This can help investors and property owners make informed decisions about buying, selling, or holding onto properties.
- Predictive Analytics: AI can be used to predict market trends and identify potential investment opportunities. Machine learning algorithms can analyze historical data to make forecasts about future rental income, property appreciation, and demand for specific types of commercial properties.
- Tenant Matching: AI-powered platforms can streamline the leasing process by matching tenants with suitable properties more efficiently. These platforms can use tenant preferences, such as location, size, and budget, to suggest appropriate spaces, reducing vacancy rates and increasing property income.
- Facilities Management: AI can optimize facilities management by monitoring building systems and equipment in real-time. It can predict when maintenance is needed, improve energy efficiency, and enhance tenant comfort. For example, AI can adjust HVAC systems based on occupancy patterns or weather forecasts.
- Chatbots and Virtual Assistants: Chatbots and virtual assistants can enhance the tenant and visitor experience by providing instant responses to inquiries, scheduling maintenance requests, and providing information about the property and its surroundings.
- Enhanced Security: AI can improve security by using video analytics to detect unusual activities or intruders and notify security personnel in real-time. Access control systems can also be integrated with facial recognition technology for enhanced building security.
- Space Utilization: AI can help property owners optimize space utilization by analyzing tenant occupancy patterns. This information can be used to reconfigure spaces, adjust leasing strategies, or even design new properties that better meet tenant needs.
- Sustainability and Energy Efficiency: AI can play a crucial role in making commercial properties more sustainable and energy efficient. Machine learning algorithms can analyze energy consumption data and suggest ways to reduce energy usage, lower operating costs, and meet sustainability goals.
- Risk Assessment: AI can assess and mitigate risks associated with commercial real estate investments. By analyzing various data sources, AI can identify potential risks related to market volatility, tenant defaults, and property maintenance issues.
- Property Inspections: Drones equipped with AI can be used for property inspections, making it easier and more cost-effective to assess the condition of roofs, facades, and other critical components of commercial buildings.
- Portfolio Management: AI-powered tools can help investors and asset managers efficiently manage large CRE portfolios. They can provide real-time insights into the performance of individual properties, allowing for more informed decision-making.
- Legal and Due Diligence Support: AI can assist with legal and due diligence processes by automating document review, contract analysis, and compliance checks, reducing the time and costs associated with these tasks.
In summary, AI is poised to revolutionize various aspects of commercial real estate, from property valuation and market analysis to tenant management, sustainability, and risk assessment. As the technology continues to advance, it will likely become an integral part of the industry, enabling greater efficiency, cost savings, and informed decision-making for investors, property owners, and tenants.
While even OpenAI cautions that the responses “may be inaccurate, untruthful, and otherwise misleading at times,” the answer provided by Chat GPT appears to be in line with information gathered from trusted sources in Google searches – and is eminently more readable for laypersons than most of those sources, often written by tech writers.
To point out the differences that users may experience between the two chatbot versions, here is the summary provided by Bing Chat (including a reassurance that we will not be replaced in our jobs): “AI is not a threat to commercial real estate professionals but rather a tool that can augment their capabilities and improve their performance. AI can help them focus on the core aspects of their business, such as building relationships, providing expertise, and creating value. AI can also help them gain a competitive edge in a dynamic and complex market.”
Practical Applications in CRE
Although news coverage of AI — and its potential dangers — seems to have exploded in the last year, it’s been used in commercial real estate for nearly a decade. Here are a couple of real-world examples of how AI is improving processes in CRE:
Data Extraction – One of the first AI applications was a platform devised by LEVERTON, which used machine learning technology to extract essential information from corporate documents (including PDFs) like real estate leases. In 2016, JLL reported that they were able to reduce time spent on lease abstraction by 60 percent while improving accuracy and generating a report that allowed them to compare data across entire retail portfolios. LEVERTON was acquired by MRI Contract Intelligence in 2019, and now the platform can extract lease data from documents in more than 25 languages. There are now several apps that can replicate this service, including LeaseLens and Prophia.
Facilities Management – There are AI platforms available that can optimize facilities management by monitoring building systems and equipment in real-time, predicting when maintenance is needed, and improving energy efficiency. CBRE has been working with AI and machine learning technology for years and recently announced that its Smart FM property management AI tool is now being used in over 1 billion square feet of client space across more than 20,000 sites to better keep track of maintenance requests and process building data.
Development Feasibility Tools – Last week, industrial giant Prologis announced that it had invested in TestFit, which uses real-time AI to help developers better judge the feasibility of new development sites. The platform, which has been used extensively by multifamily developers, provides insights into design, constructability, and costs in early-stage site planning for projects.
AI is becoming an essential component of successful commercial real estate operators, from brokerage to construction to finance. Although there is a learning curve associated with how to best implement AI into your business, the rewards are many, and the cost of not adopting some aspects of the technology may leave you behind your competitors.