Contrary to expectations, commercial real estate has not seen a major crash. Foreclosures continue to rise, but many owners are managing to navigate the high interest rate environment. However, the combination of high interest rates, limited financing sources, and lack of supply has significantly reduced sales volume. This has led to increased competition among brokers for each transaction. Unlike buyers' markets of the past, sellers are not discounting as much as they should, instead pushing prices to the limits of what is financially viable. As a result, brokers are restructuring their organizations to become more streamlined and efficient, and many are leveraging advanced technology to make this happen.
Real estate transactions involve a significant amount of data. Unlike stocks or commodities, real estate data comes from a variety of sources, much of it in inconvenient formats such as PDFs. As such, each transaction involves a lot of data entry, a task that is often delegated down the chain to individuals with little training or oversight. This is a job perfect for AI. Real estate companies are starting to leverage AI to manage unstructured data. As early as 2016, JLL partnered with Germany's Leverton to automate lease management. In a previous Propmodo interview, JLL's CTO explained that this ongoing process is still incredibly complex for a company the size of JLL, which produces millions of documents a year in dozens of languages.
Other big real estate companies are following suit. CBRE has built an “AI playground” to experiment with use cases. “We created a self-service AI playground and are adding about 150 users every week through word of mouth,” says Sandeep Dave, CBRE's chief digital officer. “This is a place where our teams can query real estate data, have the model direct them to real estate documents, query those documents, and translate them into multiple languages.”
All the big brokerages are investing in AI to make underwriting more efficient. They're taking a range of approaches, from partnering with startups to tapping established tech giants. Cushman & Wakefield has chosen the latter, announcing earlier this year that it will use Microsoft's Azure AI to integrate artificial intelligence into its workflow, while Marcus and Millichap have formed strategic alliances with San Francisco-based tech company Archer to give brokers an edge.
Newmark is one of the major brokerages that appears to be investing less in AI. The “AI Outlook” page on the company's website remains blank, which doesn't seem to reflect a lack of confidence in AI's growth potential. The company launched a dedicated data center and cloud computing real estate division last year. Instead of big technology investments, the company has focused on aggressive hiring, and is the only global brokerage that has added staff amid the commercial real estate downturn.
Newmark expects the need for AI will be met by the growing number of technology companies developing products for real estate. There are more companies offering document analysis services than ever before. Major real estate tech companies like MRI and Yardi have AI services, as do popular brokerage tech companies like Buildout. In addition, a number of companies, such as DocSumo, offer document abstraction for CRE. There are also companies, such as Proper.ai, that specialize in adding AI to specific real estate platforms.
Commercial brokers are looking for every way to save time, reduce costs, and close deals faster. Turning to AI for help gives them more options than ever before. Most of the larger brokers have partnered with AI providers or developed their own capabilities. Others are taking advantage of the growing number of tools available, albeit at a cost. If the market continues to stagnate, we may see even more investment in AI to give struggling brokers a competitive advantage. It will also become clear who wins the AI arms race.
Brokerages that have invested heavily in the technology expect to see benefits through increased trading volumes and easier adoption, while those that have been waiting hope it will be easier to outsource to specialized technology companies rather than develop complex software in-house. Ultimately, as more brokerages adopt AI, the companies that can best utilize its capabilities will reap the most benefits, regardless of how much they have invested in its development.