The real estate AI debate: Risk or revolution

Broad cross-sections of CRE see applications for AI

OpenAI’s November 2022 release of ChatGPT marked an inflection point in the application of AI in many industries including commercial real estate (CRE). The development of the interactive large language model (LLM) interface sparked numerous cross-industry discussions, as evidenced in public company earnings calls following the release, during which executives mentioned “AI” more times than at any point in the previous decade. CRE was no exception, with industry professionals already having identified many potential use cases ranging from more efficient project management and sustainable building design to enhanced data analytics. Altus Group's Q4 results for the CRE Industry Conditions and Sentiment Survey shed more light on the industry’s evolving perspectives on the new technology.

Participants were asked to address the question “In what way do you think artificial intelligence (AI) will affect the CRE industry?” They could choose any or all of the following responses:

• “AI has practical applications that will benefit CRE professionals and the industry”

• “AI has the potential to fully disrupt and transform CRE roles and the industry”

• “AI is unproven technology, so the impact to CRE is uncertain”

• “AI poses a threat to CRE jobs and industry standards"

Overall results revealed a perception of AI's potential as “transformative”, with nearly one in four respondents acknowledging its capability to revolutionize CRE roles and the industry itself. A substantial majority (72%) view AI positively, recognizing its practical benefits for CRE professionals and the industry as a whole. However, sentiments were not uniformly optimistic; nearly 37% of respondents expressed skepticism, citing AI as an unproven technology with uncertain impacts on CRE. Meanwhile, 20% of participants expressed concerns about AI's potential threat to CRE jobs and industry standards.

Views of the technology varied across industry experience, CRE function, and company size. Confidence in AI increased with firm size but decreased with years of experience. Most notably, owners, operators, and service providers saw far more practical applications for the technology than those in relationship-centric CRE businesses such as brokerage and lending. As the use of AI and LLMs continues to proliferate, the survey results reveal the potential for an uneven journey for the application of AI in various aspects of CRE.

Seasoned CRE professionals bearish on AI

Nearly 80% of respondents with fewer than 15 years of experience held a positive perception of AI, noting that it has “practical implications that will benefit CRE professionals and the industry”. However, this perception notably declined with industry experience – only 60% of respondents with more than 20 years of experience held the same view. Tenured professionals were also least likely to describe AI as transformative and most likely to express skepticism. Having witnessed the rise and fall of other technologies, they may be more risk-averse and thus less convinced of AI’s benefits to the sector.

Figure 1 - AI sentiment by years of CRE industry experience

AI skepticism was shared by novice professionals (<5 years experience), with half saying the technology’s impact to CRE is uncertain. Yet more than 80% reported that AI has practical applications. The 30% overlap in responses suggests that novice professionals have yet to see successful AI applications in CRE but believe the technology will inevitably be proven.

Overall responses show that only one in five views AI as a threat, but this perception was highest amongst the seasoned professionals with 11-20 years of experience – jumping to nearly 40%. Just over 12% of industry veterans with more than 20 years of experience view the technology as a threat to industry jobs and standards, a fraction similar to that of professionals with 10 or fewer years of experience. Young professionals are confident in AI's future role, viewing it as non-threatening to their careers. Tenured professionals, while less optimistic about AI, still feel secure in their positions, possibly anticipating retirement before AI's full adoption or integration.

Download the US results from the Q4 2023 Commercial Real Estate Industry Conditions and Sentiment Survey.

Owners and operators most certain about AI’s benefits

Owners and/or operators of real estate (defined as survey participants who identified working in asset-, portfolio-, fund- or investment management) have huge support for AI with nearly 85% responding positively. They were also less likely to suggest AI is unproven. Both are likely a result of more obvious use case categories for the sector – portfolio-, market-, or predictive analytics; risk assessment; compliance monitoring; or cost efficiencies at their firm or across their portfolio.

Figure 2 - AI sentiment by CRE industry functional area

However, transaction-centric businesses (defined as survey participants who identified working in capital markets/ financing/ lending and brokerage) expressed the greatest levels of skepticism (“unproven”) and the lowest levels of confidence (“beneficial”). With heavy reliance on personal relationships and therefore less apparent use cases for AI, less than 10% view the technology as a “threat”.

Service providers remain largely split on the technology – while 75% say AI has practical applications for CRE, similar to the overall share, more than 28% reported that it poses a threat to jobs and standards.

A possible growing AI divide in CRE

The results of the survey also reveal differing views on AI across firm size. In general, respondents from larger firms (those with greater exposure to CRE) reported seeing more practicality for AI in their businesses than smaller firms. Nearly 90% of respondents from firms with greater than $5 billion in exposure saw practical applications for AI, while only 50% of respondents from firms with less than $1 billion in exposure to CRE said the same.

Figure 3 - AI sentiment by firm exposure to CRE

One interpretation of this finding could be that larger firms, which have more resources, may have begun exploring or even incorporating the new technology and therefore have a better understanding of the potential benefits. Professionals at firms with between $1 and $5 billion in assets, holding the bulk of real estate capital, were less likely to express skepticism of the technology and were the least likely to view the technology as a threat.

As AI in CRE rapidly advances, its implications and applications are destined to remain a prominent topic in 2024. In subsequent quarterly surveys throughout the next year, Altus Group’s Research Team will gauge shifting sentiment about the technology. Readers from across CRE subsectors are encouraged to participate in the next installment in mid-January.