Is the Commercial Real Estate Industry Ready to Welcome AI?

Whether you’re discussing ChatGPT or the soaring stock price for NVIDIA, artificial intelligence – AI – is front and center just about everywhere these days.

“I think it’s the biggest technological advance that we've had since the adoption of the internet, and I think it will continue to permeate everything that we do in our daily lives, how we interact business-wise, and how we interact with each other,”

Michael Hironimus, CCIM, Principal/Founder of Duckridge Realty Advisors in West Linn, OR

Hironimus is in the process of developing a course on AI for The CCIM Institute, and he also is weaving AI into existing courses offered through The CCIM Institute he teaches with a focus on asset management and market analysis. “We deal with a lot of big data. So, naturally, we're starting to think about how we can utilize AI,” says Hironimus. Even introducing AI to CCIMs at a high level will be helpful to get people thinking about how they can use it in their business and their company, he adds.

AI is already finding its way into a variety of commercial real estate applications from tenant services chatbots and smart building systems to financial modeling and lease administration. According to a report by Bloomberg Intelligence, the generative AI market alone is expected to grow from an estimated $40 billion in 2022 to $1.3 trillion over the next ten years.

AI 3.0

AI ranked as the #4 biggest issue in the Counselors of Real Estate’s 2023-24 Top Ten Issues Affecting Real Estate®. Although AI has exploded along with the introduction of ChatGPT to mainstream users, the use of AI in the CRE industry goes back decades. According to the Counselors of Real Estate, AI 1.0 started back in the 1980s by collecting data, such as on rents, vacancies, operating income, and ultimately cap rates. Groups such as NCREIF came up with standardized data sets to compare NOIs that helped to measure performance, both relative and absolute.

AI 2.0 was the work that Bill Wheaton and Ray Torto did in collecting a time series of data on rents and vacancies and then forecasting using traditional time series methods, and the work that Bob White did in collecting and forecasting transactional cap rates. Where we are now with AI 3.0 is integrating new and alternative forms of data and new forecasting techniques.

CCIMs are already starting to see AI emerge in a variety of tools they are using for business, such as Site To Do Business, ESRI, and Moody’s Analytics, as well as everyday tools such as Google, Microsoft, and customer relationship management (CRM) software. “We’re starting to see it integrated into the tools that we're using now, and it's only going to continue to increase as the technology matures, and we see more applications for this technology,” says Hironimus. The challenge moving forward is just getting people to understand how they can use AI to create value and drive effciency.

Practical Applications for CRE

As time goes on and people understand that AI is very approachable and useful, there will be more adoption and utilization. A good analogy for AI is to think of it as a really intelligent, enthusiastic intern or junior broker, notes Hironimus. The trick is just being able to give clear instructions and understand how to elicit the information that you need, he adds. For example, Hironimus has created his own AI bots that can perform tasks that range from helping his son learn calculus to financial analysis and lease abstraction.

People also need to understand the guardrails in using generative AI tools, such as putting appropriate privacy settings in place so they are not putting confidential or proprietary information out into the universe. And just like with any intern, it’s important to review and fact-check the information being delivered for accuracy. However, CCIMs shouldn’t be intimidated or afraid to experiment with AI to see how it can help them in their business.

“AI is designed to be intuitive and it’s getting more intuitive as the technology progresses. The first thing is to just get started and see what you can create with it.”

Michael Hironimus, CCIM, Principal/Founder of Duckridge Realty Advisors in West Linn, OR