Ron Kamdem, our U.S. Real Estate Investment Trusts &
Commercial Real Estate Analyst, discusses how GenAI could save
the real estate industry $34 billion and where the savings are
most likely to be found.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Ron Kamdem, Head of Morgan
Stanley’s U.S. Real Estate Investment Trusts and Commercial Real
Estate research. Today I’ll talk about the ways GenAI is
disrupting the real estate industry.
It’s Tuesday, July 1st, at 10am in New York.
What if the future of real estate isn’t about location, location,
location – but automation, automation, automation?
While it may be too soon to say exactly how AI will affect demand
for real estate, what we can say is that it is transforming the
business of real estate, namely by making operations more
efficient. If you’re a customer dealing with a real estate
company, you can now expect to interact with virtual leasing
assistants. And when it comes to drafting your lease documents,
AI can help you do this in minutes rather than hours – or even
days.
In fact, our recent work suggests that GenAI could automate
nearly 40 percent of tasks across half a million occupations in
the real estate investment trusts industry – or REITs. Indeed,
across 162 public REITs and commercial real estate services
companies or CRE with $92 billion of total labor costs, the
financial impact may be $34 billion, or
over 15 percent of operating cash flow. Our proprietary job
posting database suggests the top four occupations with
automation potential are management – so think about middle
management – sales, office and administrative support, and
installation maintenance and repairs.
Certain sub-sectors within REITs and CRE services stand to gain
more than others. For instance, lodging and resorts, along with
brokers and services, and healthcare REITs could see more than 15
percent improvement in operating cash flow due to labor
automation. On the other hand, sectors like gaming, triple net,
self-storage, malls, even shopping centers might see less than a
5 percent benefit, which suggests a varied impact across the
industry.
Brokers and services, in particular, show the highest potential
for automation gains, with nearly 34 percent increase in
operating cash flow. These companies may be the furthest along in
adopting GenAI tools at scale. In our view, they should benefit
not only from the labor cost savings but also from enhanced
revenue opportunities through productivity improvement and data
center transactions facilitated by GenAI tools.
Lodging and resorts have the second highest potential upside from
automating occupations, with an estimated 23 percent boost in
operating cash flow. The integration of AI in these businesses
not only streamline operations but also opens new avenues for
return on investments, and mergers and acquisitions.
Some companies are already using AI in their operations. For
example, some self-storage companies have integrated AI into
their digital platforms, where 85 percent of customer
interactions now occur through self-selected digital
options. As a result, they have reduced
on-property labor hours by about 30 percent through AI-powered
staffing optimization. Similarly, some apartment companies have
reduced their full-time staff by about 15 percent since 2021
through AI-driven customer interactions and operational
efficiencies.
Meanwhile, this increased application of AI is driving new
revenue to AI-enablers. Businesses like data centers, specialty,
CRE services could see significant upside from the infrastructure
buildout from GenAI. Advanced revenue management systems,
customer acquisition tools, predictive analytics are just a few
areas where GenAI can add value, potentially enhancing the $290
billion of revenue stream in the REIT and CRE services space.
However, the broader economic impact of GenAI on labor markets
remains hotly debated. Job growth is the key driver of real
estate demand and the impact of AI on the 164 million jobs in the
U.S. economy remains to be determined. If significant job losses
materialize and the labor force shrinks, then the real estate
industry may face top-line pressure with potentially
disproportionate impact on office and lodging. While AI-related
job losses are legitimate concerns, our economists argue that the
productivity effects of GenAI could ultimately lead to net
positive job growth, albeit with a significant need for
re-skilling.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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