Are CRE Leaders Sidelining AI? The Economics of Tech Hesitancy

Can you afford to go another quarter without data surety? CRE leaders are sideling available AI solutions waiting for a major player to come out with one-size-fits-all tech. But what’s the real cost of this approach?

AI adoption may be in its infancy within the CRE industry, but already it holds so much promise as a new path for conducting business—and there are already examples of AI transforming CRE transactions in the market today.

Cushman & Wakefield announced they would integrate AI into CRE transactions going forward, allowing their team to blend a digital transformation strategy with proprietary partnerships.

Another industry leader, Nuveen, digitized an additional 10M sq ft onto Prophia’s platform earlier this year, giving them AI-backed portfolio insight and an industry advantage in the major markets where they conduct business.

However, these two prominent examples do not represent the industry as a whole. Based on a recent Deloitte survey, 67% of executives interviewed shared a lack of trust in AI. While this refers to executives in a variety of prominent industries, the sentiment is not far off to executives’ feelings towards AI in CRE. This begs the question, why are so many CRE leaders sidelining AI when it offers so much opportunity in CRE business?

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Why Do CRE Executives Mistrust AI?
CRE Market Challenges Hindering Tech Adoption
CRE Leaders Play the Waiting Game
Using Tech to Overcoming CRE Challenges Ahead
How Prophia Makes a Difference in CRE Business Ops

Why Do So Many Executives Mistrust AI?

Since OpenAI released ChatGPT earlier this year, experts and industry leaders raised warning flags about adopting AI before the collective markets fully weighed the ramifications of fast adoption and development. What resulted was an onslaught of negative press and fears about applications like facial recognition, driverless vehicles, and false information online. Fast forward to today, and it isn’t surprising that hesitancy lingers among the market elite.

So what exactly do those fears look like almost a year later? One such fear may not be exclusive to the C-Suite and that is job replacement. According to a PYMNTS report, AI advancements could impact 300 million jobs worldwide in the coming years—and we’ve already witnessed industry-wide mobilization in the form of a historic strike by the Writers Guild of America that came to an end earlier this year.

Executives also have some privacy concerns when it comes to AI and whether large data models—the caliber needed to process the amount of data in CRE portfolios—leave organizations unnecessarily exposed. This fear, compounded with the fact that 67% of CEOs trust intuition over data-driven insight, only makes AI adoption slower than it should be, based on the state of the CRE market.

CRE Market Challenges Put Tech Adoption on the Back Burner

In addition to hesitancy around AI, CRE leaders have more on their minds than data-processing speeds. Whether facing occupancy challenges or trying to secure investment opportunities when leasing activity has slowed, the challenges of today’s CRE market are mountainous and a significant turnaround feels far off. In addition to these challenges, leaders are also facing highly unique circumstances within each asset class.

Retail Market.

While retail is faring better than other CRE sectors, retail investments are still facing some challenges. Freestanding brick-and-mortar stores have improved their popularity significantly since Covid, encouraging traditionally mall-bound brands like Bath & Body Works, Foot Locker, and Gap to pursue opportunities in shopping centers to move closer to their customer base.

This is changing the way many leasing teams handle retail opportunities, building agreements with greater tenant incentives and co-tenancy terms to attract big-name brands to shopping centers. This is a concrete strategy for attracting notable brands and supporting retail growth, but term-heavy leases can make portfolio management from quarter to quarter more complex.

Read more about Prophia for Retail >>

Medical Office and Life Sciences.

Healthcare is an incredibly complex and specialized industry, so it isn’t surprising that healthcare, medical office, and life science spaces are also highly complex, facing challenges in the down market. With lending at a standstill and interest rates sitting higher than many would like, expansion opportunities in healthcare and life science have been hard to financially back. This has caused the growth of these in-demand sectors to slow as we approach the new year.

In response to the lack of growth, many in healthcare and medical office real estate are considering a move into traditional office space. However many of these properties are not outfitted with the specifications healthcare facilities need to accommodate medical equipment or serve patients, i.e. large hallways, ample parking, and locations close to interstates and highways.

Office Properties.

The CRE sector facing the most insurmountable challenges is, without a shadow of a doubt, office. Since the pandemic, office occupancy has suffered a major blow, and markets from Chicago to San Francisco are struggling to fill empty cubicles and conference rooms.

Organizations like Industrious Office have conducted studies to find the secret to office occupancy in a Post-Pandemic world. There is some evidence to suggest that turnkey office space and offices in mixed-use buildings fare better in hybrid-work environments than traditional office properties, but many business operators will ultimately look to “right size” their office space which will require property owners to pursue more creative solutions to fill vacancies.

The Problem With Waiting for the “Right” Solution

CRE leaders value tech for streamlining tasks like accounting and property management. However, CTOs are less eager to adopt workflow solutions for portfolio data accuracy, partly due to a culture of trust in contract matters and the significant data processing power needed for ensuring data accuracy in a specialized industry like CRE. This may lead them to hold out for a major tech player's one-size-fits-all data solution.

But CTOs today could be making a mistake with this wait-and-see approach to AI. While it is true that CRE portfolio data is highly complex and high volume, a horizontal tech solution—even from a big name in tech—would struggle to validate the accuracy of the proprietary terms found in CRE contracts. This sentiment applies, in equal measure, to data platforms that leverage AI.

Read more about Vertical Vs Horizontal AI >>  

Artificial intelligence is only as accurate as its training database. Because of the sensitive nature of CRE data, leading firms, by and large, do not release contract terms to the public. So any tech provider, even leaders in the industry, will only be able to build their AI off of CRE data that is public and miss the industry nuances Prophia has been exposed to for over five years.

Complex Market Challenges Ahead Require Strategic Investments Today

With lending risk at an all-time high and uncertainty in the air, it isn’t surprising that industry leaders are being careful about their investment strategies. In some cases, this is manifesting as a pause on purchases deemed unnecessary like brand new tech solutions that require company-wide adoption.

While we live in an era where tech solutions abound in every major industry, there is only one solution on the market today built specifically to tackle the unique data and workflow challenges experienced by professionals in CRE. That’s because Prophia was designed with vertical integration and trained exclusively on proprietary, not public, CRE data, making it one of the most sophisticated AI platforms for conducting commercial real estate business.

Investing in CRE tech in a time when leasing activity and expansions are hard to sustain may feel like putting the cart before the horse, but Prophia provides teams and investors with much-needed clarity, data accuracy, and workflow efficiency for making magic happen in a time when teams are getting crushed by the troubling realities of the market.

How Prophia’s AI Makes a Difference in CRE Business Operations

If market challenges are casting shadows on your firm’s financial health or ineffective processes have made it difficult for your team to simply validate data, these are signs of an encumbered workflow and data inefficiencies.

Whether your team’s goals in 2024 include portfolio diversification, supporting expansions, or even right-sizing your portfolio size, these ROI-generating paths require accessible and accurate data. No disparate spreadsheet, no second-guessing on critical dates and tenant terms. CRE portfolio data today requires one, dedicated tech solution for achieving ultimate accuracy as well as measuring and managing portfolio performance.

From facilitating due diligence to seamlessly conveying terms of multi-tenant properties, Prophia synthesizes contract data and stores it all in one convenient place so every essential player has unencumbered access. This leads to faster business intelligence, team coordination, and the ability to use portfolio data to complete daily tasks or meet quarterly goals.

If you would like to harness the power of next-generation AI and overcome some of today's most daunting market challenges, contact the Prophia team to learn about platform adoption for CRE.