Kathryn House
Artificial intelligence is reshaping the world as we know it, and the impact on the property sector will be profound. So what exactly can landlords and occupiers expect in the coming decade? I'm your Talking Property podcast host Kathryn House. And to find out what's in the wings I'm joined by CBRE's Head of Office Research, Tom Broderick, who recently completed a thought-provoking report on the likely impact of AI on Australia's office sector.
Tom Broderick
The theory is that AI is going to make us far more productive. And so if companies are seeing huge amounts of productivity benefits from generative AI, then maybe they will embrace the four-day week.
Kathryn House
Thanks Tom for joining today.
Tom Broderick
Hi Kathryn.
Kathryn House
I'm also joined by Julian Kezelman, the innovation director for Taronga Ventures, a company that invests globally in real assets, innovation and technology to drive change in the built environment.
Julian Kezelman
It's such a dynamic space. The models are changing all the time, and the actual applications that we're going to see in real estate making the biggest impact are only starting to emerge.
Kathryn House
Julian, great to have you on Talking Property.
Julian Kezelman
Great to be here, Kathryn. Thanks for the invitation.
Kathryn House
So, AI is a fascinating topic to dig into. This year, the Property Council of Australia', CEO Mike Zorbas noted that the AI genie was well and truly out of the bottle, and that it would transform the property sector for the better. In a recent survey with Yardi, the Property Council noted that the global AI market size was valued at US$196.63 billion in 2023 and projected to expand at a compound annual growth rate of37. 3% between now and 2030. So I think most of us have delved into applications like ChatGPT, which sparked a global frenzy last year. And recent research by Forbes showed that the most popular use cases for AI at the moment are to respond to messages, answer financial questions, plan travel itineraries, and craft social media posts. But if we look at AI's potential with a wider lens, Tom, you made some predictions in your recent report, including the fact that AI will accelerate the rollout of smart office buildings. And Julian, through Taronga's RealTechX growth program, you're working with real estate technology entrepreneurs to implement some effective go-to-market AI strategies for the wider property industry. Perhaps could you talk us through a few real-life examples of the technologies these startup companies are working on?
Julian Kezelman
Happy to Kathryn. So we probably have a few examples that would speak directly to how AI is impacting smart buildings, and I'm happy to share those with you. So the first is an Australian company, which we've supported from the R&D phase right through to recent commercialisation called Calumino. And they've invented an entirely new type of thermal sensing chip. So a little bit different to the passive infrared sensors that you see in most tenancies. This is a much higher-grade chip that provides military grade thermal imaging at around the cost of a passive infrared sensor. And what they're using AI to do is to actually interpret the thermal sensing data in a space to see how many people have come out, how many people have left, and what is the density of people remaining. And then ultimately using that information to be able to dial up or dial down lights or HVAC, thereby improving operations. So that's one example at a tenancy level. And maybe another example I can talk to at a building level is a company we invested into a few years ago called WINT Intelligence. And WINT provides water monitoring using a very narrow form of AI where they actually listen to the pipes in a building and after about a month of training data, they can say what is normal utilisation for the building and what is abnormal. And when they hear a hissing sound or a gushing sound, they'll know that there's a burst pipe somewhere in the building and they actually use the AI to determine exactly where that is. So you can send out FM teams to cut off that water flow before there's too much damage done. So a very real and immediate building and tenant impact and also quite a good ESG outcome for that one too.
Kathryn House
So are many property management and facility management teams starting to use this type of technology?
Julian Kezelman
Well, certainly. I think the key with these kinds of technologies is to keep people away from the complexities of AI. All of that's really embedded within the product. And so what they actually get at the end is just a signal of what they need to do. There's a leak on level 17 on the west side of the building, this is where you've got to attend to it. AI, I think, can be quite overwhelming for people of all different industries. And what we trust our entrepreneurs to do is to embed it into the product such that it fades into the background as a piece of the technology. And all they're really focused on is what is the customer outcome.
Kathryn House
Yes. So in terms of other applications, Tom, your report talks about the fact that AI will revolutionise office design. What can we expect?
Tom Broderick
Yeah, I think one of the surprises of generative AI is that it's actually quite creative. It can create images almost instantly, and that can be applied to design and particularly workplace design. CBRE is already rolling this out globally with our CBRE Plans platform. So I think in the future you could think about a tenant who's deciding where they want to occupy in the future. They might choose a building in their shortlist, choose a floor, and then the AI can generate a design for them, basically instantly, they can go into the 3D image of that design and basically decide whether they like it almost instantly. So that'll be a real game changer for workplace strategy, I think. Tenants will be able to go through different scenarios within one session. They won't have to go back to the architect, and so that'll improve the efficiency of decision making, I think.
Kathryn House
What does that mean for the architects?
Tom Broderick
Yes, that's a good question. I think the architects will still absolutely have a place because they will have the intel of what other clients have done and what works. The AI will be able to provide the basic template, but then the architect will be more of an advisor around what works and what doesn't work.
Kathryn House
So I guess another thing that people are really focused on is where can this deliver cost savings? Particularly landlords who are looking at, "Well, why should I be looking at AI seriously?" Tom, you also made a few interesting observations in your report about how AI can lower outgoings in the future. Can you talk us through that?
Tom Broderick
Yes, so obviously AI is accelerating the automation of different tasks. So a good example is around robotic vacuum cleaners, which any consumer can buy one of them for their house now, and already landlords in the office space, they're rolling them out in common areas. Just for some context, on average, 15% of outgoings in a prime CBD office building in Australia is spent on common area cleaning and maintenance. So I think this automation could reduce the cost of that. And then the other aspect is the benefit to the tenant who also pays for cleaning of their own space. Their fit out. And so for the larger tenants that can be hundreds of thousands of dollars per year. So I think we could see savings both on the landlord and the tenant side.
Kathryn House
And Julian, are you seeing anything with the entrepreneurs that you are working with in this area when it comes to cost savings or workplace design?
Julian Kezelman
Yes, I mean, robotics is a really interesting example. So we've invested into a security robot out of Singapore called Kabam Robotics.
Kathryn House
Kabam?
Julian Kezelman
Kabam.
Kathryn House
I love it.
Julian Kezelman
Yeah, it's a strong name. They are able to basically patrol an asset 24/7. So they'll link into access control, they'll link into lifts, and they'll just take themselves around the asset noting any security issues or even things like FM issues. So if there's a spill or a light that's out. So I think that's a really interesting application, all general commercial assets. And then we're seeing even more targeted applications in places like healthcare. So there are amazing robots that are doing actual surgeries, but I'm thinking at an asset level, there's robotics that are helping deliver bedsheets and deliver medicines around a hospital. So all of those kind of lower grade operational tasks that would actually now free up admin and nursing staff to do the higher value stuff, which is looking after patients.
Kathryn House
And what about technology infrastructure, would companies need to invest in top tier technology to fully capitalise on AI's potential, Tom?
Tom Broderick
Yes, so I think as we all know, AI uses an incredible amount of data and that's why there's so much investment into data centres at the moment. And access to fast connectivity is going to be really important in the future. So there's something called a WiredScore certification that assesses digital connectivity of buildings similar to how NABERS measure sustainability credentials of buildings. I would say right now, WiredScore is probably not that high on the criteria list when tenants are looking at their future office space. But I think that could change with the rollout of AI, it'll become more and more important. And the other aspect is tenant fit out costs across the country have increased significantly off the back of high construction costs, but also they've increased because tenants are spending a lot more on tech infrastructure. Part of that is that we're all having a lot more Zoom meetings than we were pre-COVID. So all of that kind of technology needs to be built into the fit out. But I also think that with the adoption of more AI within companies, that they'll probably have to spend more on that tech infrastructure.
Kathryn House
What are you seeing in that space, Julian?
Julian Kezelman
Yes, I think that's fair to say. And some of that infrastructure is actually just around their own data management. So if you really want to make the most of AI, you've got to make sure that your data within your organisation is clean, it's accessible, and by opening that up, you not only get the benefits of generative AI, but that's actually applied to your own proprietary data and really tailored to your organisation. And so I think that that's where a lot of the investment will be in addition to the hardware investment, is actually in data structuring and data organisation to prepare for this oncoming wave.
Kathryn House
Because I think that's really where some of the greatest potential is in how you can use data better.
Julian Kezelman
Hugely so. And I think a lot of that historically has been trapped in different silos around the organisation. And I think AI has given organisations an opportunity to really rethink, "Well, what is the inherent value in all of this data that's trapped across our servers, and how do we see what the potential to unlock that is with AI?"
Kathryn House
I think that's one of the really exciting things for CBRE because we have such a big global business, such a big platform, and so much data. So if we can really effectively use that harnessing AI, I think it's going to be a really exciting step forward.
Julian Kezelman
Absolutely.
Kathryn House
So Julian, do you think Australian property companies are taking it a little slow when it comes to embracing AI? I was looking at that Property Council Yardi survey I mentioned earlier, and it noted that while around a third of Australia's real estate professionals think artificial intelligence will have a revolutionary impact on the industry, the same number again have not taken any steps to implement AI. And indeed, Yardi's Bernie Devine said the data suggested Australia's real estate industry is concerned that it's trailing rather than trailblazing with technology. What are your thoughts?
Julian Kezelman
Look, I think the Australian real estate sector is approaching AI at about the same pace that it's approached other technology waves in the past. It's certainly not leading by global standards, but I don't think it's trailing by too much either. I mean, I think what's important is having a genuine commitment to exploring the value to be unlocked within AI. And it's such a dynamic space. The models are changing all the time, and the actual applications that we're going to see in real estate making the biggest impact are only starting to emerge. So what I think is important is having a culture of innovation where you're consistently trialing new technologies. And that there's a leadership commitment to saying, "Well, how does this actually augment and add value to our core strategy?" That you're giving people throughout the organisation an opportunity to just play with these AI technologies and see what use cases they can apply it to. And then as I spoke about before, for the CIOs and CTOs to get the house in order from a data perspective to maximise the value that can be extracted. So while Australia is probably going moderately slow and in keeping with the general culture of technology adoption, I don't think that's such a bad thing. I think what's going to be important in this is not a race to the end, but just maintaining momentum over time and building up your capability as you go.
Kathryn House
Yes. So Tom, did you have any thoughts on that one?
Tom Broderick
Yes, I think the only point that I would make is that the AI rollout seems to be very capital intensive. And so I feel like the big players are going to be at the forefront of it. And domestically, while we think we're big, I think our property funds and fund managers are relatively small compared to our global peers. So for example, Blackstone has 1 trillion US dollars of assets under management. Australian domestic funds are probably less than 10% of that. So I think that we'll probably in some cases piggyback off the big players and the tech that's coming from them. But then to Julian's point, some of this technology, the AI is just embedded in the end product. So with that Yardi survey, some of these respondents may be using AI and not knowing it.
Kathryn House
Yes, true. It's interesting though, when you look at it and look at other countries, I think one of the things in that survey was about our Asian neighbours and particularly India, where something like 67% of respondents with a similar survey said they expect radical change. So it will be interesting to see how we progress vis-a-vis our neighbours in Asia.
Julian Kezelman
Yes, I mean maybe to talk to India just briefly, they are a very technology-led economy, and so they've done a lot of the business process outsourcing, which major corporates in the west have done historically. And that was one of the first sectors that people thought there was going to be significant change just because it's all very repeated tasks, data entry, data cleansing and standardisation. And so I can see why India might think that the AI wave is going to impact them in a kind of outsize way.
Kathryn House
And it seems too that people are still keeping their cards very close to their chest. When I was trying to do some research ahead of this podcast, trying to find out what some of the bigger Australian property companies are doing is still a little difficult. I don't think anyone wants to lift the lid yet. I don't know if you found that when you were putting the report together, Tom.
Tom Broderick
Yes I think that's definitely the case Kathryn.
Kathryn House
So we'll just have to wait and see. So much of the debate around AI has centered on how it could eliminate current roles. We've sort of touched on this already, but what are your thoughts on that front, Tom?
Tom Broderick
Yes, I think this question's really important for investors and existing landlords of office buildings. What is the future demand for office space and whether there'll be this big drop in white-collar employment as a result of the rollout in AI? I did a fair bit of reading about this for the report. No one really knows the answer to it. It's pretty hard to predict. MIT did a really good survey in the US where they interviewed a number of academics and business leaders around the US. And basically the feedback that they got was that the fears of mass job losses were largely exaggerated. I think the feedback was that there will certainly be some job losses in some industries, but there'll be jobs created elsewhere as a result of the rollout of AI. And so for the report, we had a look at the history of white-collar employment in Australia and how technological milestones have impacted it. And really it doesn't look like there's been any impact. And I think a good period to look back at was the 1980s, which was really the widespread adoption of personal computers. Think how much that changed white-collar employment during that decade. But when you look at the numbers, there was just steady growth in white-collar employment in Australia during that period. So certainly it would've impacted on secretarial and clerical work, but there were jobs created still in other parts of the economy and white-collar economy. So my guess is that it's not going to have a huge impact in the overall white-collar employment numbers. There will be some industries that will be more impacted than others.
Kathryn House
What are your views Julian?
Julian Kezelman
Yes, I completely agree with Tom. I think there's going to be a lot of variance and that depends on industry, that depends on corporate culture as well, how people want to run their organisations. And I actually think there's quite a few parallels with what's going to happen in terms of the workforce impacts on AI with COVID, and how we've seen shifts with working from home. It was basically good bandwidth and video conferencing that's opened up that opportunity, and we're still wrangling with that debate in terms of the return to work and how that's all going to play out. And that's only a couple of years post pandemic. So I think some of these influences will also stack on top of each other, but ultimately it's going to come down to how major tenants want to run their organisation and how much they want technology to play a role, and how much they value their human capital. And that's going to be, I think, a core part of corporate strategy going forwards. And those decisions are going to have interesting effects on the office market.
Kathryn House
I think it's that whole ability, and you mentioned it before with hospitals, it's that freeing up of time to do higher value work where I think there's that great opportunity, and I know we're using it in our team at CBRE. For some of our really lower-level press releases, we're using AI to create those so that we can focus on the more interesting thought leadership.
Tom Broderick
Kathryn, I think the other interesting part of this conversation is around graduate level employees because AI seems to be kind of replacing some of the tasks that they would historically do right at the start of their career, and that's how they kind of learnt the ropes. That's something that businesses are really going to have to think about is how do you onboard these kind of new entrants to your industry? And I don't think anyone knows the answer to that, particularly in sectors like the legal sector where junior lawyers would be doing the research that AI can now do almost instantly.
Kathryn House
Yes, it's going to be quite a challenge because you do need that grounding when you're moving into a corporate role. And how will you get that if AI is doing it for you? We'll have to wait and see on that front. So something that might cause a little bit of debate whenever we talk about working from home, et cetera. Does AI have the potential to shorten our working week, do you think, Tom? And I know you did dabble in that for the report, given how productive we're going to be with the help of our new AI digital colleagues. What do you think? Is it going to be a four- day week sometime soon?
Tom Broderick
Yes, I think first of all, I'd just like to point out the disclaimer that I didn't get any kind of commitment from CBRE leadership when I write this into the report. So this is-
Kathryn House
Am I going to get you into trouble now?
Tom Broderick
Just in case our CEO is listening to this, Kathryn, but look, this is already something that companies in Australia are looking at. Medibank is a high-profile example of it, and that's not really AI-related, I don't think Medibank's decision, it's more about work-life balance and measuring whether productivity is maintained by going to a four-day week. But the theory is that AI is going to make us far more productive. And so if companies are seeing huge amounts of productivity benefits from generative AI, then maybe they will embrace the four-day week. And then the question for the office sector comes about what impact does that have on office occupancy? And I don't think it would change drastically the numbers we're already seeing. Generally, we're seeing Tuesdays, Wednesdays and Thursdays are pretty healthy occupancy wise, and Mondays and Fridays are the ones where people are working from home. So I would say that those days would continue to be lower if more companies embrace the four-day week.
Kathryn House
What do you think, Julian, four-day week?
Julian Kezelman
Four-day week sounds good. I think it comes down to culture again. So there are some organisations you mentioned, Medibank Private, their values are around health and lifestyle and well-being, other organisations are going to want to get 120% out of their staff on a five- ay week. So I think it will free up 20 to 30% of capacity in a lot of professional services jobs for sure. And it's just what do we do with that additional capacity? Do we just put it into growth and doing a better job at serving our customers and building better organisations, or do we create more work-life balance for our employees? And I think that that's going to be very individual for different organisations.
Kathryn House
But you also noted in the report, Tom, that it could actually bring more people into the office potentially if we're starting to use driverless car technology, there's less traffic congestion because we're harnessing AI to stop that and potentially reduce commute time. So could it actually bring more people into the office?
Tom Broderick
Yes. Well, if anyone's read our Occupier survey over the past few years, that is the number one reason why people don't want to come into the office is commute times. And the theory around driverless cars, which AI I think is accelerating, I mean, driverless cars seems to be this thing that's coming in the medium-term. We've been talking about it for a decade. I think it's still coming in the medium-term, but the theory is that it's going to make traffic more efficient. And so that could reduce commute times and we won't have to maybe wait for a bus for 20 minutes as well. And so that may drive higher occupancy. Again, this is kind of a speculative long-term prediction that I've made.
Kathryn House
It's the crystal ball gazing, we all need to do a little bit of crystal ball gazing. So maybe now a bit of a big question to finish with, and I'm going to direct this at you, Julian, so I hope you don't mind. What do companies need to consider, do you think, if they want to be disruptors when it comes to AI rather than being disrupted?
Julian Kezelman
Yes I think it's all about mindset. So either we're fearful and we sit back and we wait for the wave to hit us, meaning competitors or other new disruptors are coming in and really challenging how we've done things historically, or we lean into a wave which is undoubtedly here. It's undoubtedly going to be transformative. And the way in which we approach that with confidence and a mindset of this is not a threat per se, but it's actually an opportunity to be seized. I think that's going to be the major differentiator with how this impacts different organisations.
Kathryn House
Well, thanks so much both of you for joining today. Really great to get your insights, Julian, and really looking forward to seeing some of the technology that's going to be coming out of those startup companies that you're working with. And great to have you back on Talking Property, Tom, I love a little bit of crystal ball gazing, and I really enjoyed your AI report. To our listeners, thanks for tuning in and if you'd like to read
CBRE's AI Impact on Office report, you can find the link in our show notes. As always, we'd also love it if you could rate or review Talking Property to help spread the word. And if you have any questions or feedback about this episode, you can drop me a note at any time via
[email protected]. Until next time.
