The Rise of AI: How Artificial Intelligence is changing Real Estate Investment Strategies

The debate about how much of a role Artificial Intelligence (AI) will play in our lives is essentially over. AI is here to stay and is playing a significant role in every facet of daily living and business, including shaping one of the oldest industries in the world – real estate. Farhana Hassim, Director, Risk and Advisory at BDO South Africa, discusses how AI is shifting opportunities in the sector.

The AI industry is poised for major growth in the near future. According to reports, the global AI market size is estimated to reach an impressive $1,8 billion by 2030. Let that sink in for a minute. The adoption of AI technology is rapidly increasing across all industries, including healthcare, finance, retail, transportation, and real estate.

In terms of real estate, AI encompasses a full spectrum of technologies deployed to spot the most profitable investment opportunities in the market. It is changing the way real estate investment strategies are developed and executed, and providing investors with more data-driven insights and analysis.

Here are just some ways AI can impact real estate investment strategies:

Predictive Analytics: AI-powered predictive analytics can help investors identify potential opportunities and risks in the market by analysing large volumes of data. This includes analysis of trends in property prices, rental rates, vacancy rates, and demographic data to identify areas with high growth potential.

Portfolio Optimisation: AI can optimise investor’s real estate portfolios by analysing property performance data, market trends, and investor objectives. The advanced technology can suggest portfolio adjustments to improve returns, identify the best mix of investments, reduce risk, and maintain diversification.

Property Valuation: AI can swiftly and effectively assess large amounts of data from various sources to assist in property valuation. This includes assessing property records, transaction history, and predicting market trends. It can also provide a more accurate estimate of a property's current and future value, allowing investors to make more informed investment decisions.

Risk Management: AI has the power to identify potential risks associated with real estate investments through the analysis of historical data and market trends. This can include identifying properties with a high risk of default or identifying areas with a higher risk of natural disasters. AI can also look at historic and current political events and predict future trends, such as the risk of a national shutdown and the impact it may have on the retail industry.

Marketing and Sales: AI can assist in marketing and selling properties by analysing customer data and predicting customer preferences. This can help real estate companies to target potential buyers more effectively, improve customer satisfaction, and reduce marketing costs.

Streamlining the property management process: To improve property management efficiencies, AI tools can be used to automate routine tasks such as responding to tenant enquiries, document generation and management such as leases, utilities, making payments and scheduling maintenance.

Improvement of internal operations: AI can help with the implementation of digital strategies that improve internal operations, lower costs and improve shareholder value.

Customer experience: AI helps investors know exactly what their market is looking for in terms of retail real estate. For example, it can assess where customers are shopping, and whether these customers are demanding more digitally driven shopping experiences, such as cardless parking facilities. If investors become more in tune with what their customer seek, they can effectively tailor their retail strategies.

It is increasingly clear that AI is becoming an essential tool that provides valuable insights and improves investment decision-making for real estate investors. However, it's important to remember that AI is only as good as the data it analyses. It is crucial that digital strategies consider data needs and objectives at the design phase and should be embedded in the overall business strategy. Data must be accurate, reliable ,relevant and useful to the business and investors. It is also important to understand that data is human-centric – both in terms of it being captured and in terms of the output having relevance within the sector. Having access to accurate data ensures that investment managers can manage risk and adjust their investments in real time based on changing market conditions.

While the pandemic changed the face of real estate investment completely, AI is the tool that can now be used to navigate those changes. From a risk and business continuity perspective, tenants are seeking more flexibility on aspects such leases terms, commercial real estate may be seeking scalability as work from home scenarios are set up, and some tenants may even seek real estate that is fluid enough to be converted from standard warehousing into more streamlined distribution hubs. It is crucial that strategies can roll with these changes. It is also crucial that the real estate industry remains agile and is able to navigate these changing tenant needs proactively – and this is where the power of AI comes to the fore.

Even in the uniquely South African landscape of loadshedding, AI has found its place. The energy crises isnt new, but there are new ways to respond. Generators are no longer sufficient to keep businesses doing business, but AI can assist by using big data to recognise patterns and predict usage. This can help investors consider appropriate alternative energy sources that optimise usage and mitigate the high costs of downtime during loadshedding stages. AI can also help predict the needed strategies around the cost management of these measures and navigate the rise of future related and non-related costs, such as the increase in insurance premiums.

From predictive analytics to property valuation, and everything in between, AI is revolutionising real estate investment strategies, improving performance, and reducing risk. As AI continues to evolve, it's likely to become an even more essential tool for real estate investors and companies looking to stay ahead of the curve.

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