Few CRE companies have achieved their AI goals. Here’s why

A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox.

The commercial real estate market has been historically slow to modernize, and yet it appears to be accelerating its adoption of artificial intelligence. 

Companies are moving beyond initial testing and exploration into more targeted applications that aim to redefine value, according to a new survey from JLL. 

The survey of more than 1,500 senior CRE investor and occupier decision-makers across various industries found that, while still in the early stages, organizations are making AI a priority in their technology budgets. They are also moving from using it just for efficiency to focusing on how it can grow their businesses.

JLL found that 88% of investors, owners and landlords said they have started piloting AI, with most pursuing an average of five use cases simultaneously. And more than 90% of occupiers are running corporate real estate AI pilots, according to the report. Compare that with just 5% starting AI pilots two years ago. The adoption is fast, but not entirely easy. 

Just 5% of respondents said they have achieved all their program goals, while close to half said they have achieved two to three goals. Much of the efforts are still experimental, without much growth. 

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“If you think about commercial real estate, traditionally, it is not a quick technology adopter, and it’s usually skeptical,” said Yao Morin, chief technology officer at JLL. “So the high number of adoptions is actually quite surprising to me. What is not surprising on the flip side is that only 5% actually thinks that they have achieved all the goals. This is pretty aligned with a lot of other industries as well.”

The reason they’re not hitting their goals is because the goal line has moved. Companies have gone beyond just wanting to do certain tasks faster, or so-called operational efficiencies. Now they are tying AI to their revenue goals. 

For example, some are using it to help them improve their investment risk models, making investment and portfolio decisions based on the output of AI. That will require big changes to the fundamental way they operate.

“When you really start moving towards the revenue side, the margin expansion side, then it’s going to require a lot more than just using a technology,” Morin explained. “You can’t just say, ‘Well, I’m saving you 10% to do this particular thing.’ Companies need to actually rethink their operating model, to rethink how they organize to actually achieve the savings.”

And so companies are investing heavily in AI, despite economic headwinds. More than half of investors surveyed by JLL have been able to get significant budget growth over the past two years in the space. Their No. 1 spend is on strategic advisory on technology or AI, and most report their budgets have increased solely due to AI. After that, the spending goes to upgrading both cyber- and data-security measures and infrastructure for AI integration.

Morin said what she found really surprising is that while most think companies will start using AI for simple tasks, or, low-risk, low-hanging fruit, that was not at all the case. 

“Our survey showed the opposite. We are getting to a point of sophistication, beyond this initial skeptical phase, where companies are really focusing on the competitive advantage to pressing business problems, using AI to solve instead of [just] those simple low-risk operations.”