AI is driving digital transformation in the built environment
AI is driving digital transformation in the built environment
Commercial real estate investors and occupiers are actively embracing AI, with 90% of companies planning to integrate AI over the next five years to help navigate the complexities of an ever-changing market landscape, according to JLL’s 2024 Future of Work Survey. By harnessing the power of Generative AI, the latest wave of artificial intelligence techniques, these stakeholders can process vast amounts of information quickly, uncovering insights that would be impossible to glean through traditional methods.
For property owners, the primary focus is on obtaining more precise insights into a property’s financial performance allowing for better-informed strategies to maximize returns. Occupiers leverage AI to optimize their real estate footprint, employee experience, and energy consumption leading to significant cost savings and improved operational efficiency. Both investors and occupiers also benefit from automating routine tasks to increase productivity.
There are three main avenues CRE firms typically source AI technologies:
- In-house development: Larger CRE firms with substantial resources may opt to build their own AI teams and develop proprietary solutions. This approach allows for tailored solutions but requires significant investment in talent and infrastructure.
- Partnerships with tech giants: Some CRE companies might choose to collaborate with established tech companies like Google, Microsoft, or Amazon. These partnerships can provide access to cutting-edge AI technologies and vast amounts of data.
- CRE-specific AI startups: There is an emerging number of startups that specialize in AI solutions specifically for the real estate industry. These companies often offer more targeted solutions that address unique CRE challenges. CRE functions that are best-positioned to explore AI range from capital projects planning, portfolio management, workplace experience management, and day-to-day building operations such as energy and utility management
The choice will largely depend on factors such as the firm’s size, budget, specific needs, and existing technological infrastructure. It’s likely that many CRE companies will adopt a hybrid of the options described, combining multiple sources to create a comprehensive AI strategy. This is the approach JLL is pursuing, whereby the company has developed JLL Falcon, a cutting-edge AI platform that combines JLL’s comprehensive proprietary data with generative AI models; partnered with incumbent technology providers; and it also leverage technologies from CRE-specific AI startups from the Spark portfolio.
When considering AI startups, an ecosystem of more than 700 PropTech companies is working on AI solutions for real estate. This segment has grown substantially. According to JLL and Pitchbook, venture-backed CRE-specific AI startups have raised $574M YTD October 2024. Investments in this sector are on track to end the year near 2018-2023 levels, excluding 2021 and 2022 which were outlier years.
JLL conducted an analysis of more than 300 CRE-specific AI startups. The study revealed that artificial intelligence is primarily utilized as a component within product technology stacks to improve problem-solving capabilities. This matches the findings from JLL’s future of work survey which reveals that commercial real estate companies are piloting the following areas in AI:
- Predictive Analytics and Forecasting
- Predicting market trends, property values, and tenant behaviors
- Forecasting maintenance needs and equipment failures
- Analyzing demographic and economic data to predict future demand
- Energy Optimization and Sustainability
- Monitoring and optimizing energy consumption
- Improving building efficiency and reducing carbon footprint
- Supporting green building initiatives and environmental goals
- Space Utilization and Optimization
- Analyzing occupancy patterns and space usage
- Optimizing office layouts and floor plans
- Identifying underutilized spaces
- Automated Property Management
- Streamlining lease administration and renewal processes
- Automating maintenance requests and work orders
- Enhancing tenant communication and support
- Improved Decision Making
- Providing data-driven insights for investment decisions
- Optimizing asset allocation and portfolio management
- Assessing risks and opportunities in real estate investment
- Enhanced analytics, e.g. more accurate time series predictions
Ultimately, the adoption of AI in commercial real estate empowers both investors and occupiers to make data-driven decisions, respond quickly to market shifts, and achieve better financial and operational outcomes in the competitive commercial real estate sector. We believe the deployment of this technology will accelerate, driving the continued strength in CRE-specific AI startups.
Written by Danny Klein, VP of Spark Innovation
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