COMMENT As AI continues to advance, it is imperative that the real estate industry understand the potential implications for the sector. Not least, we need to anticipate the possible changes in space requirements that will be driven by AI-induced shifts in employment patterns and business operations. And the knock-on effects that these will have on cities and city workers.
AI is generally adopted to help improve efficiency, enhance creativity and productivity, and optimise customer experiences. The key question is whether these outcomes will lead to a reduced demand for employment in certain roles, as technology enables employers to deliver more with fewer resources. Alternatively, we might see a net gain in employment and associated demand for workplaces as new roles are created and knowledge workers come together to drive growth in new products and services, all powered by AI.
A glimpse into the future
Comparing the stages of AI development in San Francisco and the UK offers valuable insights. San Francisco, with its established tech ecosystem, provides a glimpse into a potential future for the UK.
Significant investments and technological advancements in AI R&D have positioned San Francisco at the forefront of AI innovation.
These developments have already led to notable AI-driven office take-up in San Francisco, where AI-related companies have accounted for 25% of office leasing since 2023 (to H1 2024), totalling 2.3m sq ft.
The lessons from San Francisco’s experience can help predict the trajectory of AI development in the UK and Europe. However, not all AI-driven growth will translate into similar real estate demand, as market dynamics differ significantly.
Tech talent and employment risks
The UK, with its strong academic institutions and research centres, is a hub for AI talent. This expertise attracts start-ups and established companies, ensuring a steady supply of skilled workers to support the growing AI ecosystem.
The comparison of AI maturity between San Francisco and the UK paints a promising picture of potential growth, but the actual impact on real estate demand is uncertain.
The success of AI start-ups and their effect on office space demand depends on factors including market conditions, the regulatory environment and technological advances.
There are positive signals that AI can drive job creation in sectors requiring innovation and creativity, potentially increasing demand for office space, but it could also lead to a net reduction in employment in others.
It has potential to create jobs in knowledge economies such as London, but poses risks for markets based on call centre and customer service roles. Industry-specific impacts further illustrate this dynamic.
In healthcare, AI can augment the work of doctors and nurses, leading to better patient outcomes and potentially more jobs, but it could also automate administrative tasks, reducing the need for support staff.
In finance, AI’s role in risk management and customer service could create high-value jobs but also eliminate others. Similarly, manufacturing may see increased efficiency and output from AI-driven processes but a decrease in manual labour roles.
Remaining agile
The ongoing trend towards hybrid and agile working adds further complexity when assessing future demands for space, as companies continue to explore hybrid and distributed working arrangements that may reduce the need for permanent office space, even when headcount is increased.
The adoption of AI technologies might lead to a redistribution in the location of certain roles. R&D roles and corporate functions could grow in core markets augmented by AI, while other jobs might be nearshored or offshored to lower-cost locations, driven by process efficiencies and workflow automation.
As we look ahead, the relationship between AI and real estate demand is complex and multifaceted. The potential for AI to either increase or decrease office space requirements hinges on factors such as industry type, the maturity of AI technologies, and the strategic decisions of individual companies.
Real estate stakeholders must, therefore, approach AI as both a potential driver of change and a source of uncertainty. Flexibility and adaptability will be key to navigating this evolving landscape, with trends toward hybrid working models, nearshoring, and automation adding further layers of complexity. It is essential for companies to remain agile and responsive to shifting demands.
Jennet Siebrits is head of UK research at CBRE
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