AI is seen as a game changer for the real estate industry, but knowledge about the technology is still low, says JLL Malaysia

This article was first published in The Edge Malaysia Weekly’s City & Country from 26 February 2024 to 3 March 2024.

In recent years, artificial intelligence (AI) has moved from academia to industry and is rapidly becoming mainstream. For example, when his OpenAI’s ChatGPT launched in November 2022, he had 100 million users signed up within two months.

At the JLL Breakfast Talk themed “Exploring the Impact of AI on Real Estate” held at Aloft Hotel Kuala Lumpur Sentral on January 30, JLL Malaysia Chief Growth Officer Krzysztof Wicic said: He highlighted PwC’s prediction that AI’s contribution to the global economy will increase by 2030.

The total amount will be $15.7 trillion.

“Historically, I don’t remember an event of this magnitude from a technology perspective. The next phase of AI is in our lives. “Three perspectives on how AI will shape real estate In a presentation entitled “, there are positive signs that AI will be introduced into our lives through several applications, even if it has not yet been implemented.

According to Vicic, the three perspectives of AI on real estate are the long-term impact on the real estate market, the short-term impact of AI companies as real estate occupiers, and the short-term impact of AI as a real estate industry. Adopter.

Although AI is considered a game changer by real estate professionals, Vicic believes the industry’s understanding of AI is still low, as revealed in the 2023 JLL Technology Survey. “Last year, we conducted a survey of approximately 1,000 respondents and found that we still don’t know how to implement, use, develop, and work with artificial intelligence. The gap is huge.”

The survey required respondents to rank technologies by expected impact, and while machine learning and AI analytics and generative AI were in the top three, from a knowledge level perspective, the same technologies was ranked last by the same respondents.

Drivers of change in real estate

In presenting his first perspective, Vicic highlights how new technologies have been a driver of change in real estate, starting with the Industrial Revolution of the 1800s, when the construction of bridges and railroads began with the modern steel industry. did. “Then, at the turn of the century, we saw more skyscrapers, especially in the United States. Then, from the 1900s to the 1980s, we saw public housing, suburbanization, shopping malls, distribution warehouses, and now urban Logistics and data centers are emerging and moving towards smart buildings.

“What is impressive is how we have moved from mechanization to electrification to digitalization and now to integration. New technologies are contributing to iconic structures such as the Eiffel Tower and San Francisco. I’ve been doing it. [Golden Gate Bridge]electric lights and elevators, IBM’s personal computers, the widespread adoption of bar codes, the launch of the World Wide Web and the growth of online retail, and now we are in the era of the Internet of Things (IoT) and 5G,” he said. said.

According to Vicic, advances in technology can impact the real estate market in five ways. changes in the geography of market growth, changes in demand and profitability across different asset types, creation of new asset and product types, and emergence of new real estate investment and revenue models. As the functionality and design of spaces evolve, AI is expected to have the same five-fold impact on real estate.

“From a geolocation perspective, we expect a shift from traditional CBD to major and established secondary technology markets, and demand will also shift from traditional asset classes to data centers, new energy smart grids, and connected infrastructure. We expect to see the birth of “truly intelligent buildings” with AI-compliant infrastructure by default.

He added: “Investment impacts are also expected. Investments are being made in projects that would have been unthinkable three years ago, such as the design of

“And the demand for data centers is expected to increase…Malaysia is considered an emerging market for them. But even more interesting is the demand for new energy smart grids and connectivity infrastructure is expected to increase. That’s what it is.”

As for the design, Vicic said it will be more experience-oriented and highly customizable. “We are already seeing this in future workspaces and new occupiers.

In addition to reflecting space, [the impact] In addition to AI, new ways of working are also important. ”

As an occupant of the AI ​​sector

AI companies and the infrastructure that supports them will drive demand for real estate in a variety of markets, Vicic said. “AI will undoubtedly support new infrastructure demands in a variety of ways. First of all, the AI ​​ecosystem is growing and will integrate hardware, computing systems, models, and applications from a variety of industries. And the number of AI companies around the world is increasing. This has an impact on office space.”

Total investment in AI has jumped five-fold from less than US$50 billion in 2014/2015 to more than US$250 billion in 2021, through a combination of public offerings, private investments, minority stakes, and mergers and acquisitions. Vicic said.

“There is a lot of money flowing into AI, with the focus last year being on the top four: medical and healthcare, data management, fintech, and cybersecurity.”Other AI investment areas observed included , retail, industrial automation, sales enablement, marketing/digital advertising, augmented reality (AR)/virtual reality (VR), drones, and more.

Vicic pointed out that the US currently leads in terms of the number of AI companies, followed by China and the UK.

“It is not surprising that 37% of AI companies, or about 15,000 companies, are in the United States. However, as infrastructure development and more data centers are built outside of this market, this situation is changing.”

He added that AI requires large amounts of resources and supporting infrastructure such as power supplies, computing hardware, high-speed connectivity networks, cloud infrastructure, and data storage.

According to Vicic, both the demand and supply of data centers are steadily increasing globally. “Last year, global market absorption for primary data center capacity was approximately 2,000 MW, while global market inventory was approximately 10,000 MW. There is a lot of room for growth and we will continue to grow.”

However, primary markets present their own set of challenges in terms of competitive energy prices and energy consumption regulation. This has started to drive growth towards less crowded markets such as Malaysia, Vicic noted. “At the moment, Malaysia is an emerging market and our generation capacity is around 200 megawatts, which is expected to increase to 2,000 megawatts in the next few years.”

Real estate industry as an AI adopter

Regarding the third perspective of the real estate industry as an adopter of AI, Vicic said that the proptech sector has laid a solid foundation for AI integration into real estate applications.

“The real estate industry is embracing new technology, with over 80% of companies [surveyed in the JLL Technology Survey 2023] We are increasing our technology budget. That’s a lot of money. ”

He also pointed out that 2022 will be the high point for AI-powered proptech investments, which will accelerate the development of AI-powered real estate applications.

“What is interesting is that invested capital in proptech AI has doubled from USD 2 billion in 2021 to USD 4 billion in 2022. These applications are now using generative AI. This is why generative AI is coming into our lives. Investment is flowing into development.”

To date, more than 500 companies are providing AI-powered services to real estate, Vicic said. “What’s interesting is that we already use a lot of it, from investment management (valuation and transactions, compliance, investment and capital planning), construction (project management, design, modeling and planning) to real estate operations (building energy). and utility management) and portfolio management (leasing and brokerage, market research, portfolio data analysis and benchmarking, and real estate marketing).

“Many tasks that were previously done manually are now performed by AI. For example, in real estate management, the old practice of having more resources on hand “just in case” It’s over now. With AI, resources are now available “on demand.” For example, engineers are needed when problems arise or when planning preventive maintenance. In the meantime, the engineers’ time can be allocated to other things,” explained Vičić.

Nevertheless, Vicic does not discount the risks and concerns that come with the introduction of new technologies, with cyber and data security concerns being the most important challenge, as acknowledged by real estate investors and developers alike. .

“AI has demonstrated the fact that significant amounts of data are moving from the private domain to the public domain. There is a real need for market standards and regulations around cyber and data security, including data quality, intellectual property rights, and privacy. ” he said.

Vicic added that new social risks are also emerging as AI replaces some traditional tasks that machines can currently perform. “This will result in job losses that will need to be alleviated by new jobs.”

He added that regulations are also needed to protect the labor market and offset AI’s inherent biases.

Last but not least is the environmental impact of this new technology.

“Data centers and the infrastructure that supports AI consume energy and water and emit carbon dioxide. Net-zero regulations to reduce the environmental impact of AI technologies, including carbon emissions, are critical. “It will play a role,” he concluded.

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