{"id":1004711961,"date":"2024-04-26T02:48:01","date_gmt":"2024-04-26T10:48:01","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004711961"},"modified":"2024-05-13T01:38:52","modified_gmt":"2024-05-13T09:38:52","slug":"ai-will-probably-boost-office-demand-and-cre-at-large","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/ai-will-probably-boost-office-demand-and-cre-at-large\/","title":{"rendered":"AI Will Probably Boost Office Demand. And CRE at Large."},"content":{"rendered":"\n<p>You don&#8217;t have to search long for <a href=\"https:\/\/www.commercialsearch.com\/news\/the-cdo-stack-generative-ai-is-coming-for-your-tech-roadmap\/\">AI enthusiasts in commercial real estate<\/a>, but then again, the skeptics are also around the corner. <em>Sure<\/em>, such emerging technologies might end up defining the whole century, but when it hits a lot closer to home, you do wonder. Will AI fill empty offices and other vacant commercial real estate space? Will it benefit the sector or simply change the paradigm so much, these questions won&#8217;t matter?<\/p>\n\n\n\n<p>The possibility that <a href=\"https:\/\/www.commercialsearch.com\/news\/ai-is-a-silver-lining-for-the-office-market\/\">AI could boost office space demand<\/a> popped up more clearly last year, albeit at a local level. In 2023, San Francisco-based firms captured 67 percent of venture capital funding for global AI, and those in the Bay Area overall nabbed a whopping 78 percent. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" data-attachment-id=\"1004712040\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/ai-will-probably-boost-office-demand-and-cre-at-large\/2_300-kansas_photos-by-jason-orear\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg\" data-orig-size=\"5272,2962\" data-comments-opened=\"0\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;Jason O&#039;Rear&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"2_300-KANSAS_PHOTOS-BY-JASON-OREAR\" data-image-description=\"\" data-image-caption=\"\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?w=1024\" height=\"575\" width=\"1024\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?w=1024\" alt=\"300 Kansas in San Francisco\" class=\"wp-image-1004712040\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg 5272w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?resize=300,169 300w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?resize=768,431 768w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?resize=1024,575 1024w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?resize=1536,863 1536w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/04\/2_300-KANSAS_PHOTOS-BY-JASON-OREAR.jpg?resize=2048,1151 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">The Potrero Hill Innovation Center in San Francisco, a.k.a. 300 Kansas, is a new project aiming to help AI tenants recruit the best talent in the market. <em>Image by Jason O\u2019Rear, courtesy of Spear Street Capital<\/em><\/figcaption><\/figure>\n\n\n\n<p>In the City by the Bay alone, this translated into 1.1 million square feet of 2023 office leasing activity, according to <a href=\"https:\/\/www.commercialsearch.com\/news\/where-to-find-the-bright-side-of-office\/\">Cushman &amp; Wakefield research<\/a>. Yes, yes, <em>yes<\/em>. While 1.1 million square feet is miniscule for a market of San Francisco\u2019s size, an amplification in leasing last year could be a harbinger of things to come. If AI grows and evolves, so will the system supporting it.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-text-color has-cyan-bluish-gray-color has-alpha-channel-opacity has-cyan-bluish-gray-background-color has-background is-style-wide\"\/>\n\n\n\n<p><strong>READ ALSO:<\/strong> <a href=\"https:\/\/www.commercialsearch.com\/news\/where-to-find-the-bright-side-of-office\/\">Where to Find the Bright Side of Office<\/a><\/p>\n\n\n\n<hr class=\"wp-block-separator has-text-color has-cyan-bluish-gray-color has-alpha-channel-opacity has-cyan-bluish-gray-background-color has-background is-style-wide\"\/>\n\n\n\n<p>Ermengarde Jabir, senior economist at Moody\u2019s, believes AI will drive office demand. \u201cMany perhaps fail to realize in their alarmism over AI taking everyone\u2019s jobs, that to build and maintain AI requires a large workforce,\u201d she said. \u201cWhile certain types of jobs may become obsolete because of AI, other sets of skills will become prevalent, and very in demand in order to keep AI operational.\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-face-to-face\">Face to face<\/h2>\n\n\n\n<p>Today\u2019s AI firms have determined, almost universally, that the work they conduct is best undertaken in offices, said Ethan McCall, vice-president of Spear Street Capital, developer of the new 300 Kansas <a href=\"https:\/\/www.commercialsearch.com\/news\/spear-street-tops-off-sustainable-bay-area-office-building\/\">building in San Francisco\u2019s Potrero Hill<\/a>. The property was developed to enable firms to recruit and retain the city\u2019s finest AI talent and build market-leading firms, he said.<\/p>\n\n\n\n<p>Echoing the notion that AI companies undertake ideation and development work within offices is Katy Redmond, technology industry lead, markets advisory at JLL. Working within shared physical space is integral to the establishment of teams and in-person collaboration required to move AI forward, she said.<\/p>\n\n\n\n<p>She and her colleagues understand that dynamic because of the way their clients in the AI space describe their workplace needs. That\u2019s why she\u2019s more optimistic about footprint growth for AI firms vis-a-vis other types of tenants. <\/p>\n\n\n\n<p>Already, AI organizations are involved in a flight to higher-quality spaces in their push to invest in tech-enabled square footage. A number have recently garnered venture capital funding and now require additional space for growing staffs, Redmond pointed out.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-text-color has-cyan-bluish-gray-color has-alpha-channel-opacity has-cyan-bluish-gray-background-color has-background is-style-wide\"\/>\n\n\n\n<p><strong>READ ALSO:<\/strong> <a href=\"https:\/\/www.commercialsearch.com\/news\/cause-for-optimism-on-the-tech-front\/\">Cause for Optimism on the Tech Front<\/a><\/p>\n\n\n\n<hr class=\"wp-block-separator has-text-color has-cyan-bluish-gray-color has-alpha-channel-opacity has-cyan-bluish-gray-background-color has-background is-style-wide\"\/>\n\n\n\n<p>\u201cSome of the companies have grown so quickly that within a few months they are out looking for more space,\u201d she added. \u201cWe\u2019ve also seen greater emphasis among major retail, financial and legal companies on AI divisions, (resulting) in greater space needs among some of these companies.\u201d&nbsp;&nbsp;<\/p>\n\n\n\n<p>In addition to AI companies, JLL has also tracked footprint growth of app and developer tool companies built on top of the main AI models, and expansions of AI teams in industries like health care and life sciences, Redmond reported.<\/p>\n\n\n\n<p>She envisions the Bay Area remaining the nexus for AI companies over the next 5 years. But as generative AI becomes established, she foresees more growth in leading markets such as Boston, New York and Seattle. With AI a major focus of government and defense contractors, the Washington, D.C., area should also benefit.<\/p>\n\n\n\n<p>Redmond also predicted growth in AI will in turn propel additional advancement in supporting industries.<\/p>\n\n\n\n<p><a href=\"https:\/\/www.commercialsearch.com\/news\/ai-leads-to-data-center-boost-across-markets\/\">Data centers<\/a>, <a href=\"https:\/\/www.commercialsearch.com\/news\/semiconductor-boom-continues-to-boost-cre\/\">semiconductor manufacturers<\/a>, AI application companies and others are anticipated to flourish, leading to footprint expansion of the supporting infrastructure required, she concluded.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-blast-radius\">Blast radius<\/h2>\n\n\n\n<p>A similar sentiment comes from Charles Clinton, CEO &amp; co-founder of real estate investing platform Equity Multiple, who believes a multiplier effect may result from investment in firms the likes of OpenAI and Anthropic. <\/p>\n\n\n\n<p>\u201cThese firms will create a blast radius of demand in real estate markets,\u201d he reasoned. \u201cSmaller firms will pop up to benefit from the talent that the larger firms draw and to create ancillary value-add services on top of the fundamental AI progress delivered by larger firms. An influx of highly compensated employees will create demand for coworking space, coffee shops and yoga studios, creating demand for flex office space, retail, mixed-use space as well as multifamily. We saw the same thing happen with Microsoft\u2019s impact on the Greater Seattle area, and Google\u2019s impact on Silicon Valley and the South Bay.\u201d<\/p>\n\n\n\n<hr class=\"wp-block-separator has-text-color has-cyan-bluish-gray-color has-alpha-channel-opacity has-cyan-bluish-gray-background-color has-background is-style-wide\"\/>\n\n\n\n<p><strong>READ ALSO:<\/strong> <a href=\"https:\/\/www.commercialsearch.com\/news\/7-uses-for-ai-in-cre\/\">7 Uses for AI in CRE<\/a><\/p>\n\n\n\n<hr class=\"wp-block-separator has-text-color has-cyan-bluish-gray-color has-alpha-channel-opacity has-cyan-bluish-gray-background-color has-background is-style-wide\"\/>\n\n\n\n<p>Clinton and his colleagues also believe the adoption of AI will propel a trend toward creation of satellite offices and flex collaborative spaces in non-central business districts, such as suburbs and outlying urban neighborhoods inside the borders of major cities.<\/p>\n\n\n\n<p>Don\u2019t bet on AI\u2019s space needs being limited solely to urban and suburban areas, added David Dowell, partner of architectural firm El Dorado. The company, which teamed with Spear Street Capital on 300 Kansas, handles work in rural Tennessee and rural Kansas. There, \u201csatellite-based connectivity has been a game changer,\u201d Dowell said. \u201cThis may surprise people, but cities are not the only place where digital innovation is and will continue to occur. There are completely different design considerations and opportunities for rural places.\u201d<\/p>\n\n\n\n<p>Regardless of setting, AI firms\u2019 needs may veer toward spaces more closely resembling light industrial or manufacturing than traditional office footprints, Dowell said. They need large facilities with workspace, collaboration zones and employee amenities, as well as floor area for computers and servers linked to significant building system capacity, including electrical and ventilation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-growth-phase\">Growth phase<\/h2>\n\n\n\n<p>Taking a distinctly more cautious view is Lucas Bianchi, founder &amp; CEO of Namaste Credit, an online marketplace for lenders, SMEs and loan agents, headquartered in India. Substantial gains in office space demand from AI companies should be expected only as the firms mature and evolve toward later funding stages, Series B, C and beyond, he said. This expansion phase often requires sizable investments and significant job growth. <\/p>\n\n\n\n<p>The substantial 2023 San Francisco office space absorption authored by AI companies like OpenAI, Databricks and Anthropic remains but a fraction of the city\u2019s 86 million square feet of office, approximately 30 percent of it empty. AI will benefit San Francisco initially, but due to the technology\u2019s Bay Area focus, other cities aren\u2019t likely to be advantaged for some time, Bianchi said.<\/p>\n\n\n\n<p>AI firms\u2019 unique needs, which may include special hardware, space for robotic testing and areas for creative brainstorming, may provide a \u201clocalized boom\u201d in Bay Area office space demand for 5 or 10 years. \u201cThat said, it is not yet clear whether, over time, AI companies will require more or less space per employee or per company,\u201d he said.<\/p>\n\n\n\n<p>\u201cIn other cities, the effect may be less pronounced and slower to materialize, due to differing rates of AI adoption and the potential for AI to reduce traditional office needs through automation and remote work enhancements.\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-decade-out\">Decade out<\/h2>\n\n\n\n<p>While few are willing to attempt even hazy predictions regarding where AI will lead the CRE market years from now, Redmond did observe, \u201cTen years from now is the really exciting part\u2026 We don\u2019t know for certain where AI will be in 10 years, but PwC and McKinsey forecast AI to be major contributors to global GDP by then. If this scenario plays out, the supporting infrastructure required for app-based companies means AI will be firmly entrenched in commercial real estate, becoming major occupiers not just in the Bay Area but in secondary and tertiary markets as well.\u201d<\/p>\n\n\n\n<p>Compared to what\u2019s predicted for AI\u2019s future, the current status of the industry might be best described as embryonic. This may explain AI companies\u2019 tentativeness about inking big leases, despite headcount and investment growth, Clinton said.<\/p>\n\n\n\n<p>To get a handle on where the technology may be 10 years from now, it\u2019s necessary to think beyond AI companies themselves, he added. That\u2019s because AI use cases could accelerate productivity gains in sectors as widely diverse as health care, the law, data-heavy fields such as accounting and consulting and novel applications not yet imagined.<\/p>\n\n\n\n<p>\u201cWith past major innovations, like internal combustion engines and personal computers, it took decades for the technology to really propagate through the economy,\u201d Clinton said. <\/p>\n\n\n\n<p>\u201cIt could well be different with AI because of the accessibility of the technology and because it is growing in power exponentially. The hope is that this will create new entrepreneurship and productivity gains across a wide range of industries and a wide range of markets. Office investment may or may not concentrate around central business districts. But an AI-driven revolution will broadly benefit the office sector, as well as many other commercial real estate property types.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Dislocation is never easy, but there\u2019s method to its madness\u2014and opportunity.<\/p>\n","protected":false},"author":450,"featured_media":1004712044,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,23891,21742,21747,1609,21787,51037],"tags":[42890,32799,51863,32796,52224,33392],"class_list":["post-1004711961","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-national","category-latest","category-office","category-san-francisco","category-technology","category-trends","tag-artificial-intelligence","tag-cushman-wakefield","tag-el-dorado-architects","tag-jll","tag-moodys-analytics-cre","tag-spear-street-capital"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>AI Will Probably Boost Office Demand. And CRE at Large. - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"While some think Ai is a nail in the traditional office&#039;s coffin, many specialists see opportunities for office demand in emerging tech.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/ai-will-probably-boost-office-demand-and-cre-at-large\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"AI Will Probably Boost Office Demand. 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