Ron Kamdem of Morgan Stanley highlights that AI and automation could save the commercial real estate industry around $35 billion in labor costs by automating one-third of job functions, significantly boosting REITs’ operating efficiency. He emphasizes AI’s role in streamlining leasing, operations, and investment decisions, while noting that despite challenges in the office sector, AI-driven productivity gains and workforce reskilling offer promising long-term benefits.
In the discussion on CNBC’s “The Exchange,” Ron Kamdem, head of US retail and commercial real estate research at Morgan Stanley, highlights the transformative impact of AI and automation on the commercial real estate (CRE) industry. He explains that approximately one-third of job functions within real estate could be automated, which is significant given the industry’s employment of around half a million people and its $90 billion annual labor expenditure. This automation potential could lead to labor cost savings of about $35 billion, equating to 16% of operating cash flow for REITs, signaling a major efficiency opportunity.
Kamdem breaks down the AI impact on CRE into three main categories. First, customer-facing applications such as virtual leasing assistants could streamline leasing processes by allowing prospective tenants to make decisions without physically visiting properties. Second, operational tasks like reporting, valuation, lease signing, and cash flow management could be automated, reducing paperwork and administrative burdens. Third, AI could enhance investment decisions by analyzing data to recommend optimal buildings and markets, thereby improving capital allocation and returns.
The conversation also touches on the broader market dynamics, particularly concerns about the office real estate sector amid changing work patterns and interest rate pressures. Kamdem notes that while some fears about a real estate downturn, especially in cities like San Francisco, have eased due to refinancing activities, challenges remain. Job growth remains a critical driver of real estate demand, and slower hiring could continue to pressure the office market. However, the potential for workforce reskilling and productivity gains through AI could mitigate some of these headwinds over the medium to long term.
Regarding specific market segments, Kamdem identifies brokers and services firms, such as CBRE, as key players to watch in the AI transformation. These companies have large workforces and the capital to invest in AI productivity tools and infrastructure, positioning them to benefit from efficiency gains and new business opportunities. Their ability to integrate AI into operations and financing strategies could set the standard for the broader industry’s adaptation to technological change.
Overall, the discussion underscores that AI is poised to reshape commercial real estate by driving significant cost savings, enhancing operational efficiency, and influencing investment strategies. While some market uncertainties persist, particularly in office real estate, the adoption of AI tools presents a compelling opportunity for REITs and related firms to improve performance and navigate evolving market conditions.