Decreasing perspective of central London skyscrapers
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A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Register to receive future issues, directly to your inbox.
The commercial real estate market has historically been slow to modernize, and yet it appears to be accelerating the adoption of artificial intelligence.
According to a new survey from JLL, companies are moving beyond initial testing and exploration toward more specific applications that aim to redefine value.
The survey of more than 1,500 senior CRE investors and occupier decision makers across various industries found that, although still in the early stages, organizations are making AI a priority in their technology budgets. They are also moving from using it just for efficiency reasons to focusing on how it can grow their businesses.
JLL found that 88% of investors, owners and landlords said they had started piloting AI, with the majority pursuing an average of five use cases simultaneously. And more than 90% of occupiers are running AI pilot programs in corporate real estate, according to the report. Compare that to just 5% of AI pilots starting out two years ago. Adoption is quick, but not entirely easy.
Only 5% of respondents said they had achieved all of their program objectives, while about half said they had achieved two or three objectives. Much of the efforts are still experimental, without much growth.
“If you think about commercial real estate, traditionally, they are not quick adopters of technology and are generally skeptical,” said Yao Morin, chief technology officer at JLL. “So the high number of adoptions surprises me quite a bit. What doesn't surprise me is that only 5% actually think they have achieved all the goals. This is also quite in line with many other industries.”
The reason they are not reaching their goals is because the goal line has moved. Companies have gone beyond the simple desire to perform certain tasks faster, or so-called operational efficiencies. They are now tying AI to their revenue goals.
For example, some are using it to help them improve their investment risk models, making investment and portfolio decisions based on AI results. That will require big changes to the fundamental way they operate.
“When you really start moving toward the revenue side, the margin expansion side, then it's going to take a lot more than just using a technology,” Morin explained. “You can't just say, 'Well, I'll save you 10% to do this particular thing.' Companies need to really rethink their operating model, rethink how they organize to achieve savings.”
And that's why companies are investing heavily in AI, despite economic obstacles. More than half of the investors surveyed by JLL have been able to achieve significant budget growth over the past two years in this space. Their number one spend is on strategic advice on technology or AI, and most report that their budgets have increased solely because of AI. After that, spending goes toward improving infrastructure and cybersecurity and data security measures for AI integration.
Morin said what he found really surprising is that while most think companies will start using AI for simple tasks or for low-risk, easy-to-achieve tasks, that was not the case at all.
“Our survey showed the opposite. We are reaching a point of sophistication, beyond this initial skeptical phase, where companies are really focusing on competitive advantage to solve pressing business problems, using AI to solve them instead. [just] those simple low-risk operations.”
