Artificial intelligence is transforming the real estate industry from sales to building management. Virtual assistants show properties to potential renters and buyers; some hotels are experimenting with humanoids at their front desks; AI tools help with property research and valuation; AI solutions staff buildings more efficiently, meeting customers only when and where they need assistance rather than maintaining staff on-site for fixed hours every day.
Such AI innovations could lead to $34 billion in efficiency gains for the real estate industry by 2030, according to Morgan Stanley Research, which analyzed tasks performed by 162 real estate investment trust (REIT) and commercial real estate (CRE) firms, with a combined $92 billion of labor costs and 525,00 employees. The analysis indicated that 37% of the tasks that these companies perform can be automated, particularly in management; sales and related activities; office and administrative support; and installation, maintenance and repairs.
“Our recent works suggests that operating efficiencies, primarily through labor cost savings, represent the greatest opportunity for real estate companies to capitalize on AI in the next three to five years,” says Ronald Kamdem, Head of U.S. REITs and Commercial Real Estate Research at Morgan Stanley.
How AI Can Cut Costs
The technological transformation of real estate gained traction during the Covid-19 pandemic, when many companies were forced to adapt to employees working from home and interactions between customers and real-estate agents became limited.
In the self-storage business, for example, one company said that 85% of its customer interactions are currently occurring through self-selected digital options. The firm was able to reduce on-property labor hours by 30% through AI-powered staffing optimization.
In the residential sector, another company has lowered the number of full-time employees by 15% since 2021 and said productivity increased with the use of AI.
Despite the reduction in on-site staffing, companies reported higher satisfaction among both customers and their own teams.
Sectors With Highest Potential for Gains
Today, the benefits of AI go beyond efficiencies in the labor force. Technology is also helping reduce infrastructure costs, through optimization of functions such as heating, ventilation and air conditioning; solar-power implementation; and energy-efficiency initiatives. AI has become a key tool for real estate firms and their clients to identify risks including cash flow stability, climate change, location, regulation, health and safety.
Investments in AI are more likely to pay off within certain sub-sectors of REITs and CRE services. For instance, lodging and resorts, along with brokers, services, and healthcare REITs could see over 15% improvement in operating cash flow due to labor automation.
“Brokers and services, in particular, show the highest potential for automation gains, with a possible 34% increase in operating cash flow, as they may be the furthest along in adopting GenAI tools at scale,” Kamdem says. “They should benefit not only from labor cost savings but also from enhanced revenue opportunities through productivity improvements and data center transactions facilitated by GenAI tools.”
A Vicious Circle?
A source of debate within the industry is the potential impact of AI-driven job elimination across different sectors of the real estate market, as the overall health of the labor market is directly linked to real estate demand. Rising unemployment could have a negative impact on both commercial and residential real estate deals.
“If concerns about significant job losses materialize and the labor force shrinks, then the majority of real estate sectors may face top-line pressure, with a potential disproportionate impact on office and lodging, given higher leverage and low cash flow,” Kamdem says. “However, our economists have argued that productivity gains and new tasks and jobs created by AI could have a positive impact on labor demand.”
