How is AI Changing Commercial Real Estate?

If you’re like most people, you have mixed feelings about the recent rise of artificial intelligence technology. Our curiosity about AI is tempered by confusion and anxiety about its future implications. According to a recent Ipsos survey, only 36% of Americans are excited about the potential benefits of artificial intelligence, a number significantly lower than the global average of 54%. At the same time, 63% of us are nervous about what AI holds for us.

Although they may not label it as artificial intelligence, businesses have used AI for years to streamline operations. Algorithms for Inventory management and transportation logistics have improved the efficiency of product movement. Machine learning can detect fraudulent activity in the banking and financial sectors in a fraction of a second. Factories also use AI to predict when machines are likely to need service and schedule maintenance accordingly.

AI has the potential to optimize and streamline nearly every industry, including commercial real estate. True, no machine can take the personal relationships we develop with our clients at Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL). However, there are three key areas where AI can enhance our efficiency, accuracy, and value to our clients: real estate investing, property valuation, and property and facilities management.

AI and Real Estate Investing

The decision to add a property to your investment portfolio should never be taken lightly, and artificial intelligence can serve as a valuable resource in the process. Just as financial planners use AI as an investment selection tool, commercial property investors and their advisors can leverage AI’s informed decision-making capabilities to develop their property portfolios while simultaneously minimizing potential risks. 

Thanks to their ability to swiftly process large amounts of data quickly, AI algorithms can readily identify economic patterns and trends faster than humans. This enables underwriters and lenders to predict potential return on investment and other factors when evaluating a deal. While forecasting the future will never be truly fool-proof, predictive analytics can clearly provide invaluable guidance on investment timing, rent growth potential, property appreciation, and other market trends. When combined with our team’s in-depth knowledge of our local market, AI can enable us to assist our clients in making even more informed decisions about property acquisition and development, ultimately leading to a stronger portfolio.

Cushman & Wakefield has been at the forefront of this shift, using a proprietary AI tool called Portfolio+. This tool optimizes commercial property collections for clients by producing strategic guidance and roadmaps for portfolio optimization. For one government client, Portfolio+ was able to identify potential savings of 15% annually using artificial intelligence.

AI and Property Valuation

If you’ve ever been curious about the potential resale value of your home, chances are you’ve entered your address into Zillow.com, one of the first real estate websites to harness the power of artificial intelligence. More than 15 years ago, they introduced Zestimates, which uses an algorithm to estimate home values. While Zillow has had its struggles (more on that later), it was a pioneer in applying AI to the real estate industry.

In commercial real estate, there are various factors that help determine property value. These include comparable properties, market conditions like supply and demand, the location and condition of the property, capitalization rates, market rents, and replacement costs. Calculating all these variables can be complex, time-consuming, and imprecise. But just as calculators simplified the process of computing complex mathematical formulas in the 1970s, AI can enhance efficiency by reducing the time spent on data entry and manual analysis.  

Relying solely on an algorithm for decision-making can be risky, however, as Zillow learned in 2021. In February of that year, the company launched Zillow Instant Offers, where homeowners in specific markets could receive instant cash offers based on Zestimates. The new business line lasted only eight months, and Zillow took a $304 million inventory write-down, stating that it had purchased homes for more than the company believed it could recoup through resale. This setback not only caused Zillow’s stock to take a nosedive but the company was forced to cut about a quarter of its workforce.

The human touch is still necessary, as Zillow learned the hard way. However, the company hasn’t abandoned artificial intelligence in its strategy. This year, it introduced a conversation plugin for ChatGPT to help buyers find properties with the help of a virtual assistant, and the company recently began rolling out AI-powered virtual home tours in select markets.

AI and Property and Facilities Management

As the leading third-party commercial property management company in Southwest Florida, our team at CPSWFL clearly understands the unique challenges of leasing management and facilities maintenance. Harnessing the power of artificial intelligence tools can greatly benefit both areas.

For lease managers, AI tools offer an array of benefits, including efficient task automation for some of the more tedious administrative tasks, such as document management and rent collection duties. Furthermore, recent AI advancements in natural language processing are helping property managers deliver prompt updates and answer tenant queries efficiently. These streamlined processes can allow our property management team to allocate more time toward crucial tasks that require more personal attention.

Facilities managers can also leverage AI as a valuable resource. Predictive maintenance algorithms can help schedule maintenance activities, preventing costly breakdowns and repairs. When smart buildings equipped with internet-based management systems for heating, cooling, and lighting integrate with machine learning, they become more comfortable and energy efficient, ultimately ensuring tenant satisfaction and cost-effectiveness. Because the sensors in smart buildings can be monitored and managed remotely, facilities management teams can promptly address any concerns or anomalies that may be red flags. Smart systems can even function as security systems, providing property managers and public safety with timely alerts regarding potential concerns.

The AI Revolution is Here

Not so long ago, artificial intelligence was a concept confined to science fiction, seemingly generations in the future. Like it, love it, or fear it, the AI genie is out of the bottle. We interact with virtual assistants like Siri or Alexa regularly, rely on our phone or vehicle’s GPS to divert us around traffic jams and enjoy personalized music playlists curated by Pandora or Spotify’s algorithms. And in the evening, we discover binge-worthy entertainment recommended by our streaming services.

Most of us find these AI-driven features enjoyable, which highlights a key point: The true value of artificial intelligence lies in how we choose to use it. At CPSWFL, we leverage AI to add value and enhance the outstanding service we already provide. We recognize the immense value of the data generated through machine learning, but we also understand that strategic decision-making is heavily influenced by individual circumstances. That’s why we will never abandon the personal relationships that make us indispensable to each client we serve.

Whether you’re an owner, buyer, investor, or tenant, artificial intelligence will revolutionize the way you interact with the commercial real estate industry. Using our global resources, local expertise, and personalized approach, the commercial property experts at Cushman & Wakefield | Commercial Property Southwest Florida can be an invaluable asset to your commercial property team in this dynamic new era. Contact us by calling 239-489-3600 or Contact Us

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