Is AI an Evolution or Revolution for Commercial Property Industry in SA?
South Africa’s commercial property sector is one of the most vibrant on the continent and compares favourably with markets in the developed world. Cape Town is a shining example of the possibilities that exist in the domestic office space as the city continues to outshine its peers in terms of new developments and urban renewal.
But is AI about to transform the sector?
The market for commercial space in South Africa has been buoyant since the 20th century as the country’s rapid economic expansion on the back of mineral resources sparked a wave of development in the 1960s.
The difficult years of apartheid sanctions put a damper on development in the latter part of the century, but a rapid uptick starting around 1994 gave the sector fresh momentum. As South African cities reconfigured themselves in the democratic era, opportunities for new development were plentiful, but this was mirrored by urban decay in many of the country’s large cities with Johannesburg and Durban being cases in point.
Fast forward to 2024, and while the situation in other metros is still far from ideal, Cape Town has struck a good balance between new developments and the regeneration of the city’s CBD, which is still home to the lion’s share of well-known companies and retail businesses.
In 2023, the Cape Town commercial property market clocked over R6 billion in combined sales value as demand continued to soar. Until recently, the sector has operated on a largely traditional basis with technology mainly being employed in the property market sphere – websites like Commercial Space being a case in point. But this could be about to change.
AI’s Role, Adoption, and Implications
Looking at the Mother City in particular, the recent economic progress made by the Western Cape government has set the stage for rapid economic expansion in the years to come and we expect to see sustained growth in the Cape Town commercial space sector which currently stands out for low vacancy levels and high tenant demand.
Against this background, a new wave of technological progress in the form of artificial intelligence, or AI, is revolutionising the way that business is being done in almost every industry, and the commercial property sector is no exception.
Let’s look at some of the ways in which artificial intelligence could improve efficiencies in the sector or even change it altogether.
AI’s Impact on the Commercial Property Industry
The number of AI applications in the business arena is staggering. This still new technology is being used to improve efficiency and streamline processes in every sector from traditional factories to high-end retail and precision manufacturing. But when it comes to the commercial property sector, there are two schools of thought around AI:
The first says that the technology is the natural next step for every business, while the opposite camp believes that the industry is fundamentally driven by relationships and can never switch over completely to an automated system.
- In the realm of data, AI offers fast and accurate analytical abilities that workers simply can’t match.
- This has a serious potential to increase efficiency of data management by an order of magnitude and many property companies are seizing the opportunity to automate their systems and gain unique insights by using AI.
The American real estate site Zillow is famous for using data to evaluate real estate sales trends. The company also makes these insights available to prospective buyers and tenants on its website to add credibility to the activity of agents who list there.
AI can help agents to analyse the wealth of data being gathered both by government and private sector entities to understand market trends that will make both their sales strategy and prospective tenants’ business outlook more effective. Data that includes sales prices, recent market activity, traffic, crime, and other information that contributes to successful property sales – both residential and commercial.
Property Management is another realm where AI can be effectively implemented.
- Smart buildings naturally lend themselves to automation, with statistics like electricity, consumption, air quality, parking occupancy, and even security incidents being easier to gather and analyse.
- Automatic alerts that let building managers take action before a crisis develops could be a game changer as AI powered building management software augments the actions of human employees to provide a seamless tenant experience.
While AI has many things going for it as a productivity tool, the controversial aspect of this technology is that it could end up replacing human workers instead of augmenting their efforts.
In the competitive commission-driven property market, some commentators have suggested that artificial intelligence could be bad news for traditional agents and property managers with its superior data analysis speed and ability to identify lucrative opportunities.
From the point of view of client success however, the AI revolution is still far from taking over the role of a recognised, seasoned property agent.
While the technology may be good at analysing data, it has not been totally successful at client-facing applications such as chatbots and text generators like ChatGPT, which has famously produced erroneous and sometimes downright disturbing output.
Understanding the specific needs of a client’s company and working with them to identify ideal commercial spaces, taking renovation requirements and negotiations with landlords into consideration is not something that can be replaced by AI anytime soon.
Even if it were, many clients would likely not trust the technology to have their best interest at heart.
There are many applications for AI in the property sector and there is little doubt that it can enable efficiency and streamline operations, but the idea that it will take over from traditional property agents is still far-fetched at this time.
Adoption Trends and Challenges
Given the beneficial potential of AI to speed up data processing and help commercial property agents and tenants identify best-fit premises to suit their needs, this new technology has been slow to be adopted in the South African commercial property sector.
Commercial property has traditionally been built on personal relationships, with some agencies still reluctant to implement technologies when traditional methods of property scouting, and marketing still yield strong good results.
Nonetheless, in the realm of property management there have been several attempts to integrate technology including AI to make the running of buildings more efficient.
- Many of Cape Town’s smart buildings are automating their climate control, security, and maintenance monitoring systems as well as making use of offsite CCTV monitoring to protect against possible collusion or intimidation attempts against their on-site security guards.
- In addition, a few property websites are starting to feature additional information, including average sales prices and the distance to local amenities from a given property. This use of data may be in its infancy, but the next few years should see widespread adoption of AI in the sector.
- Smart valuations using a wealth of data previously unavailable to agents and investors, and AI driven insights that help developers create the ideal office space to suit the real needs of tenants are just two of the exciting applications of AI.
As with many industries though, property agents may be reluctant to become early adopters because of perceived risk and unfamiliarity.
To address these issues, the commercial property industry, stakeholders, including property developers, and the building management industry need to collaborate and define the areas of business where AI implementation will be beneficial.
Given the level of integration between property agencies and building managers, agreeing on a system that would allow building data and local real estate statistics to function as an efficiency booster would be an excellent first step.
Some of the benefits that could be derived from this include:
- Using building vacancy insights to alert property agents when a specific premises is a good choice for prospective tenants.
- Pinpointing property marketing efforts so that the right tenant ends up in the building of their choice and agents are provided with data they’ll need to approach suitable tenants and landlords in order to create a perfect match resulting in long term occupancy rates.
- Proactive building management that responds to maintenance and security issues before they happen, harnessing the power of AI to monitor smart sensors throughout the building.
Building case studies around the successful implementation of AI in the industry will be the first step to instilling confidence in this new technology among the more traditionally minded members of the commercial property sector.
Costs and Benefits of AI Adoption
Implementing AI in commercial buildings and the property marketing process can result in significant improvements in efficiency, ultimately boosting the return on investment that investors can realise from their premises.
The factors to consider when making the decision to take a high-tech approach to building management and property marketing include the following:
Financial considerations
AI implementation can be both costly or affordable depending on the specific software and hardware required.
Subscribing to a cloud-based AI platform could represent a monthly investment of hundreds or possibly thousands of Rands whereas equipping a building with smart sensors and automated functionality could run into amounts ten times greater.
In the case of smart buildings, the maintenance cost of keeping the facilities operational will also add to monthly overheads, though it can be argued that this would be offset by energy savings and other efficiencies
Operational efficiency
This is by far the most significant benefit of AI and the technology’s main drawcard. With the right data insights, AI can improve the efficiency of property brokers and buildings, translating into savings in the following areas:
- Ideal match scenarios for tenants and landlords at all budgets
- Efficient property marketing for faster sales and lease agreement finalisations
- More efficient buildings that cost less to run and therefore cost tenants less in monthly management fees
Social considerations
For any business, the first question about AI is “do we have the skills to run it?” In a traditional sector like property, a lack of suitably trained staff could be a serious challenge – especially as some business owners may have a limited understanding of the technology.
AI has the potential to solve a variety of business problems, but it could also lead to unemployment and retrenchments if the jobs done by loyal staff members become automated. Given South Africa’s existing challenges with joblessness, a hasty shift to AI could worsen social stability at a time when the country can least afford another major disruption.
Strategically and Responsibly Harnessing AI
Whilst there remain considerable uncertainties about the future of AI and commercial property, whatever the industry decides, the Commercial Space team will continue to embrace new technology and continue a decades long commitment to exceptional client service.
To view our portfolio of premium office space in the Cape Peninsula, contact us today.
