Many people have already encountered artificial intelligence (AI) through the Chatbot software ChatGPT. But the uses for AI systems go far beyond this. They are becoming increasingly effective and they offer great opportunities, including for the property sector. The future possibilities can only be imagined today. The technology is developing rapidly. In addition to the automation of repetitive tasks, AI is now already being used for analysing large quantities of data, and optimising and automating entire work processes. It is even applied in self-learning control systems in buildings, enabling more efficient and climate-friendly operation and ultimately making them ESG-compliant.
AI as a game changer for ESG
AI can significantly accelerate the decarbonisation of property portfolios, beginning with a survey, data input and analysis to provide an overview of where the property portfolio stands in terms of sustainability and to enable specific measures to be introduced in the individual properties. This is what led Real I.S., in August 2022, to enter into a collaboration with the software company Deepki and to introduce the ‘Deepki Ready’ platform as a central hub for entry and analysis of ESG-relevant consumption data regarding the properties we manage. Consumption data of each property and each tenant is collected and automatically analysed to determine the extent to which the relevant building is compatible with the 1.5° pathway for climate change mitigation and other ESG requirements. The Deepki platform complements the evaluation with the data of our inhouse scoring model and an analysis based on the Carbon Risk Real Estate Monitor (CRREM) as well as comprehensive energy audits.
AI-assisted tools can also make a considerable contribution to energy efficiency and to the reduction of emissions and costs: optimising the entire building control system – from heating, ventilation and air conditioning systems to lighting – allows a building’s energy consumption and carbon footprint to be reduced significantly within a short time. Example: thanks to the use of AI-supported property control systems from Recognizer, including smart meters, we have been able to immediately reduce the energy consumption in some buildings by 20 percent. This AI technology will now be implemented in all types of real estate of our portfolio, where this is possible, in order to further reduce the energy consumption of our portfolio properties.
Limits to implementation and hurdles imposed by AI
AI technologies are a great support in these ways. However, they are no substitute for face-to-face communication, human expertise and empathy. As a far-sighted asset manager, it is essential to know one’s clients and tenants as well as potential customer groups in order to respond appropriately to their needs and special requirements.
One of the greatest challenges – apart from the availability and quality of data –, however, is to find enough qualified staff with an understanding of the technology, processes and contents of the workflows that are to be transformed into digital procedures. As a matter of fact, a primary prerequisite is the existence of an overall digital strategy that includes AI-supported applications. The design also comprises the digital infrastructure that is needed for AI-supported applications and their integration in corporate workflows. Providing individualised IT solutions for specific problems is also proving to be a challenge in this respect. This is because service providers are now also finding it difficult to recruit sufficient numbers of appropriately qualified staff.
Regulation of AI is a controversial subject in the sector. The reason for this is the EU Artificial Intelligence Act, the first-ever comprehensive legal framework on AI, which entered into force on 1 August. It governs the use and development of AI in the European Union and aims to protect fundamental human rights. It divides AI systems into separate risk categories, with different data protection, documentation and transparency requirements attached to each. The requirements have to be incorporated into the national laws of all EU member states by 2 August 2026. AI systems with unacceptable risks will be prohibited after six months (February 2025). Requirements for high-risk AI systems will apply after 36 months, and the remaining requirements will have to be implemented within 24 months. However, the AI Act is not universally viewed as positive. Critics fear over-regulation and say that bureaucratic obstacles will stifle innovation and impose an additional financial and administrative burden. Non-compliance will result in sanctions and large fines.
Conclusion
The property sector is under great pressure to take action. One reason for this is that it plays a key role in reaching the EU’s target of becoming climate-neutral by 2050. Another is that sustainability criteria such as mitigating climate change, reducing greenhouse gas emissions and increasing energy efficiency are important factors in the determining the value of a building. They can have substantial impacts on the three basic valuation parameters of annual net yield (rents and costs), the expected future ratio between rental income and purchase price, and the remaining useful life.
Artificial intelligence has the potential to boost the further development of the real estate industry. AI technologies are still in their infancy, and will undoubtedly be a vital part of a company’s operations in the future.
AI systems not only improve precision and efficiency of many operational processes, but they also help us in our day-to-day work. Moreover, they offer added value for reporting on environmental, social and corporate governance related aspects and the decarbonisation of real estate portfolios. In addition, they can be useful for our investment decisions.
It is now up to every individual to be open to these new technologies and take advantage of the opportunities they offer. We are already doing this as part of our active asset management, to increase energy efficiency and reduce our building emissions. However, we ourselves are also continuously developing. We are confident that the future will bring further technological possibilities and innovations, and we look forward to them.