Should the Real Estate Industry Avoid (Or Postpone) AI Adoption?

GRI Club member Imre-Gustav Vellamaa shares his insights into concerns about the adoption of AI in the Real Estate Industry

December 13, 2023Real Estate
Written by Imre-Gustav Vellamaa
There are several major challenges that must be overcome (Image: Igor Omilaev | UnSplash)

Real Estate (RE) is a long term industry. But we don’t need to go back into distant history (just check out “oldest known surviving buildings“ at Wikipedia) to see this. Financial ROI calculations for RE projects hitting 15-20 years is typical nowadays. For owners and operators it also means that any short term market fluctuations (such as Covid-19, the European energy crisis, high inflation rates, growing interest rates, etc.) must always be considered as a natural part of business. 

Much like a long voyage by sea, navigating these fluctuations must be taken seriously, or your ship (RE project) could sink fast. Although bad weather, obstacles, or technical issues may mandate a few course corrections along the way, the ultimate destination (your project’s business plan) does not change.

To achieve these 15-20 year financial, environmental, social, etc. goals in real estate, strong and motivated teams must work together. From design and fundraising to construction and asset management, and from marketing to customer service and finance, the ship’s entire crew must be working towards the same goal.

Of all these divisions, technical (Facility Management) teams and managers could play the most vital role in securing the wellbeing of everyone working in commercial buildings. There are several major challenges that must be overcome to achieve all the goals inside buildings and, whether we like it or not, the variety of challenges is growing all the time. 

Changing the Game

The Greek philosopher Heraclitus once said: “the only constant in life is change”. And he was correct, especially if we think about the new challenges being faced - most of which seem to appear at the most inconvenient moments!

During the last several years one more change - an emergent technology called Artificial intelligence (AI) with Machine Learning (ML) - has arrived on the doorstep of the Real Estate industry. Annoying? Maybe we’ve heard enough about new technologies already – should we just forget about AI? We all know that launching any new technology involves risks, be they organisational, technological, financial, legal or otherwise, so why not simply remove these risks by avoiding (or at least postponing) AI? 

Well, because new challenges require new solutions. Just as It is impossible to fly to the Moon on a horse; it is impossible to overcome 21st century challenges with 20th century solutions. 

I think there is a better way to remove these risks, through the implementation of professional project management to help bring AI into practical use so that everyone can enjoy the benefits!

What benefits does AI bring to Real Estate?

Higher customer satisfaction, better health, and improved energy performance are just a few benefits of AI solutions (Image: Steve Johnson | UnSplash)

We need to understand that there are several factors that can impact the expectations of real estate stakeholders earlier than after the aforementioned 15-20 year time period, including remote work, coworking, internet trade, and many others. Of all of these, ESG is probably the biggest game changer in the world economy right now. 

Why are some big brands reluctant to open shops at airports? Because they want to distance themselves from aviation, which is anything but green (despite the significant efforts of both airlines and airports in meeting sustainability goals). Stakeholders - owners, investors, employees, tenants, visitors, authorities, and even the environment itself - can no longer accept anti-ESG developments and are increasingly ready to leave (or, in the environment’s case, to die)!  

According to Colliers¹, the main benefits of Smart Building through the asset lifecycle are:
  • Inspirational experience – attracts tenants;
  • Integrated operations – operational savings;
  • Futureproof infrastructure – higher asset value.
Higher customer satisfaction from analysing behavioural data and responding accordingly, better health from required indoor climate control as well as 30% reduction of energy cost and CO2 emission from higher performance efficiency, 2% higher asset value from well-functioning technical systems or/and opportunities for higher rental income thanks to more modern building concepts and the resulting higher added value are just few examples of what can be achieved through the adoption of AI solutions.  

Is Real Estate ready for AI?

In 2011, Industry 4.0. was mentioned for the first time in Germany. According to the University of Oxford, the major technologies driving the fourth industrial revolution are Cloud Computing, the Internet of Things (IoT), Artificial Intelligence (AI) & Machine Learning (ML), and  Smart Sensors. Continuously growing computing power, the digitalization of data, and access to open-source AI all strongly support the development of AI-powered solutions. 

Do all the suppliers of these solutions really offer a true AI (two lines of code in Python is not an AI - yet!)? Are the current solutions capable of understanding and covering the needs of real estate? Will they even exist after 12 months (10% of startups do not reach their first anniversary and 70% do not reach their 5th year)? 

Although these important topics are not the focus of this article, in general the answer is yes - the Real Estate industry is technologically ready for AI! It is just that some buildings have higher readiness levels while others need additional upgrades.

Psychologically, the situation is a bit different - as it is with every new technology. There are innovators, early adopters, early majority, late majority, laggards, etc. Based on a range of research, early and late majorities count for around 68%, meaning that the majority is still on stand-by at the moment. 

So, what are they waiting for?

Looming Deadlines

2030 is the first major sustainability deadline in the EU, with 2050 being the goal for net-zero. This gives us at least 7 more years to prepare - to wake up before the last minute and understand that big changes do not happen overnight in Real Estate. 

A question from the economics side: what happens to prices (and availability) if there is an extreme urgency from the demand side and supply can not meet it fast enough? Hint: What happened to energy prices in Europe in 2022/23? One dramatic moment from that came on the 17th of August, 2022, when electricity prices in the Nord Pool Baltic region reached 4000 EUR/MWh from 18:00-19:00 CET+1 because of the (wrongly) prognosed lack of energy supply! 

On the positive side – in addition to innovators and early adopters - there is a clear change appearing in RE media and conferences with global, regional, and local industry leaders. Just a few years ago, AI was solely being promoted by technology companies, and at best it was perceived as a "nice to have" idea that was quickly overshadowed by more pressing matters facing RE companies. But today it is the property owners and managers themselves who are talking about AI and the added value it brings them! 

The reasons for this change are natural: 
  • AI technology has evolved and its credibility has increased;
  • AI technology companies have evolved and become more reliable and stable partners;
  • Experiences with AI are positive - more and more success stories are encouraging those with no experience, and even those who had previously unpleasant experiences.

An Endless Road

New technologies require new rules and new ways of thinking (Image: Brendan Church | UnSplash)

Together with the unlimited development of technology, it is important to understand that this is an endless road. For example, the rollout of 5G offers amazing benefits - but for how long? 

Until the introduction of 6G, of course! Right now we can only imagine what new opportunities will arise, and so the way we think needs to be updated continuously. But sometimes it’s not about technology at all. Turning once again to ESG, the pressure for RE owners and managers to find a new way of thinking comes from investors, tenants, visitors, and regulators, making it essential to respond accordingly lest you lose your credit lines, tenants, visitors, and - as a “cherry on top“ - even more money in the form of penalties. 

Probably the most important aspect going forward is that new technologies (including AI) require new rules and new ways of thinking. This must entail not only a readiness to launch these new technologies but also a vision of the big picture to see how upgrades are needed at every level of planning, execution, and cooperation. 

To illustrate this point, let’s suppose that a manufacturing unit finds a way to increase their efficiency by 30%. Clearly, this will have a strong influence on purchases, transport, warehousing, sales, and finances, but it will also impact retailers and end customer expectations. The whole chain is influenced! 

Now, what would happen if we simply kept all of our old rules? This could result in transport capacity shortages, warehouses being overloaded with unsold products, or additional financial need to be invested to stock balance etc. Naturally, this applies to other aspects of the RE industry as well.
Industrial revolutions have never just been about the introduction of new technologies because they also demand revolutions in how we think. Converting this to Real Estate – one role of technical & facility managers is to be technological pioneers, making it a natural progression for them to take on the role of pioneering a new era of thinking too. 

Technical and facility managers from all countries - unite! Unite to forge a future where AI brings the most benefits to your buildings. Unite to make AI even better by sharing your experience and feedback with AI providers. Unite to help solve global challenges alongside AI providers. And most importantly of all, unite to help save the climate and environment - the Earth! 

After all, there is no Planet B.

Imre-Gustav Vellamaa

(P.S. Special thanks to Renata Hartle and Przemyslaw Wasiluk for your strong and valuable contributions to this article!)
  1. Colliers, 12/10/23, BREL Forum in Riga)