Artificial intelligence (AI) — what was once a mere buzzword is now reshaping industries and creating an environment ripe with investment opportunities. This transformative force is driving efficiency and innovation across industries and sectors, including real estate. We think AI has the potential to enhance investment processes and add diversity to investment strategies. Asset managers who strategically integrate AI into their operations can gain a competitive edge, and they risk falling behind if they don’t.
A technology with great potential
A technology with great potential
AI has the potential to reshape the real estate sector. It can improve the investment process and enhance the asset- and property-management functions. We also expect AI to create attractive real estate investment opportunities and allow investors to access new markets. In this article, we will focus on AI’s potential impact on investment, but also look at some of its other effects on the real estate sector.
AI may be the next transformative technology, and although its potential has been increasing for years, the more recent expansion of accessible tools such as ChatGPT have made it mainstream. The potential for AI has helped push equity valuations higher.
More recently, there has been market anxiety and concerns over AI’s impact and its ability to deliver the widespread gains predicted. We still think AI has the potential to have a significant and wide-ranging impact, however, though there is uncertainty over the exact quantum and nature of this effect.
In the broad sense, AI refers to the use of machine-learning and deep-learning algorithms to study data to predict future behavior or trends, mimicking some human cognitive functions. The breakthrough in generative AI algorithms is that they can now learn from patterns in existing data to generate new content, designs and solutions. It is hoped AI will have a major impact on the economy, as its further integration into the jobs market will help enhance overall productivity. It could mirror the period running up to the millennium when more widespread use of computing saw strong productivity growth.
In the US, Oxford Economics expects the use of generative AI to assist and automate workplace tasks and boost annual GDP by 2.9 percent by 2032.1 The productivity of the overall US workforce is expected to rise by more than 10 percent during the same time period. Hence, generative AI has the potential to significantly raise the outlook for GDP growth in the United States and other countries, too.
Despite the prediction that AI will help enhance productivity, the key questions are which jobs are at risk of being displaced and which will be enhanced by AI. This has important implications for the real estate sector. On one hand, productivity-enhancing AI can boost overall job numbers if innovation spurs a sector and causes demand to grow in excess of the productivity gains delivered by AI. On the other hand, if output is static, productivity advances can see the same amount of output produced with fewer hours from people required.
AI as a technology is still in its early phases and will likely affect the economy in ways not yet envisaged. The wide range of outcomes means there is significant uncertainty about the future of AI and its impact on the labor market. The downside is greater structural unemployment due to job displacement, while the upside is net job creation and productivity enhancements. The overall impact will vary by sector. Oxford Economics, however, estimates more than 9 percent of the current US workforce will be displaced by generative AI by 2032. The affected workers are predominantly in the office-using sectors, such as information, professional, scientific and technical services. This will likely present some headwinds to future space demand for offices.
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