AI’s Rising Tide Has Potential to Transform Commercial Real Estate

AI’s potential for broad-based productivity gains and real-world applications will impact every sector, driving success and growth. It is not about mass job displacement but rather about automating repetitive tasks to create a more efficient workforce. Though some jobs will be lost due to automation, AI is also expected to create new opportunities. A recent World Economic Forum report estimates that though AI could displace 85 million jobs, it could create up to 97 million new jobs globally by 2025.

AI’s transformative power across industries positions it for long-term growth, potentially leading to a robust economic recovery. This potential of AI to revolutionize industries should inspire confidence in its transformative power, making us optimistic about its future. 

Fortune Business Insights estimated the North American AI market size was $176 billion as of 2022 and projects a compound annual growth rate of 21.9 percent from 2023 to 2030. A far more futuristic outcome could be the rise of “smart cities” where infrastructure and services are optimized through AI. This could significantly impact commercial real estate, creating demand for buildings equipped to handle advanced data integration and automation, and replacing flight to quality with an even higher level of operational optimization: a flight to AI-ready buildings.

Historically, technological advancements have consistently driven economic recoveries. AI’s productivity gains echo the vital role previously played by innovations such as the silicon chip, which heralded an era of enhanced productivity and innovation. Today, AI stands on the cusp of a similar breakthrough, with the potential to drive broad-based productivity gains across all sectors. The AI boom is a change-maker driven by real-world applications. This impact is not unlike electricity’s first role, driving transformative growth across sectors. According to a McKinsey & Company report, AI may automate up to 30 percent of business activities across occupations by 2030.

Drawing parallels with the post-pandemic recovery, broad growth took several years to gain traction after the Great Recession. Similarly, the current recovery is evident in job growth and stabilized inflation, but the cost of gas, food and insurance dulls the shine. This collective sentiment colors the outlook for companies and sows the seeds of caution, which can, in turn, lead to layoffs. 

AI’s transformative power across industries, however, positions it for long-term growth, potentially leading to a robust economic recovery. To contextualize AI’s emerging role within this framework, consider the gradual yet promising recovery from the pandemic as a backdrop, highlighting how technology, particularly AI, is poised to accelerate and sustain economic resurgence and stability.

Though the full impact of AI on office space is unknown right now, the growing presence of AI companies suggests a potential increase in demand. Looking at the impact tech giants had in their home submarkets, the asking rents up until 2019 grew anywhere from 50 percent to 115 percent coast to coast. Available space disappeared, snapped up by other tech companies desiring close proximity to the big tech companies. AI could have a similar impact, even though available office space is abundant right now. Its ability to streamline tasks and empower teams could also influence office design to optimize for collaboration with AI tools and create a need for strategically designed physical workspaces in a hybrid model.

When integrated into the hybrid workplace, AI serves as a catalyst for flexibility, innovation and productivity. This liberation of human potential for higher-order problem-solving and creativity is where the actual value of AI lies. The combination of hybrid and AI can create a powerful synergy, enabling individuals and organizations to achieve their ambitious goals effectively. 

The ability of AI to process large volumes of data and provide real-time insights empowers teams to make informed decisions quickly, fostering an environment conducive to innovation. A Raise Commercial Real Estate report in 2022 on Y Combinator companies showed that 81 percent were adopting a hybrid work style. Current estimates suggest that at least 75 percent of these companies are implementing the hybrid work style as a long-term strategy. 

AI-driven platforms, like Raise Commercial Real Estate’s WorkplaceOS, leverage real-time data for strategic decision-making. The intersection of AI and high-touch service exemplifies a future in which technology and human expertise merge to optimize space utilization and tenant experiences. In an ever-evolving office landscape, embracing technological advancements is essential for staying competitive. From a leasing standpoint, integrating AI into intelligent portfolio management can revolutionize decision-making. Fueled by real-time market and client data, AI empowers clients with insights tailored to their needs. AI can assess occupancy patterns and space usage data, surfacing underutilized areas ripe for transformation and breathing new life into them as dynamic collaborative spaces. 

As AI evolves, expect even more innovative solutions that put tenants at the forefront, creating a vibrant, data-driven real estate ecosystem. 

Petra Durnin is the head of market analytics at Raise Commercial Real Estate.