Real Estate Market Pulse Survey
2024 Real Estate Market Pulse Survey: The AI opportunity
With high interest rates and falling occupancy rates, our annual Real Estate Market Pulse Survey found that real estate executives are bracing for another turbulent year ahead. But there are opportunities to be found, especially in technology-driven investments like artificial intelligence and the infrastructure needed to power them.
The real estate sector faces some significant headwinds as we approach the end of 2023 — namely, poor economic conditions, high interest rates and declining occupancy rates in certain commercial real estate market segments. It was against this pessimistic backdrop that we embarked on our annual real estate market survey, designed to take the temperature of executives across the industry. From their responses, we learned that concerns abound as we look ahead to 2024 — but so do some interesting opportunities.
Below, we take a closer look at the survey responses, dig deeper into key themes and their implications, and offer the next steps on how to best prepare for the opportunities in the year ahead.
About our survey
The findings from BPM’s 2024 Real Estate Market Pulse Survey are based on responses from real estate finance executives across the United States. Answers were provided in the third quarter of 2023. The respondents represented a diverse cross-section of subsectors, including:
What is your primary real estate sub-sector?
Key finding:
High interest rates and declining occupancy rates are top concerns. In this environment, acquisition opportunities could be attractive for those in a position to make such a move.
When it comes to the concerns that are keeping real estate executives up at night, high interest rates and declining occupancy rates top the list. And looking ahead, the majority of our respondents (52%) expect that the demand for commercial office real estate will continue to decline over the next two to five years.
Current research confirms these fears. A recent McKinsey report revealed that demand for office and retail space is expected to stay below pre-pandemic levels even as far out as 2030. On the positive side, respondents agree that potential buying opportunities are what they’re most excited about in the year ahead.
What concerns do you have for 2024?
Do you anticipate that the demand for commercial office real estate space will continue to decline in the long term?
What opportunities are you excited about in 2024?
Implications:
Prepare for elevated interest rates and a higher cost of capital for 2024 as the U.S. Federal Reserve will likely keep rates high until they reach their 2% inflation target. Continue to focus on streamlining operations to preserve cash on hand and/or find ways to diversify your revenue stream in the face of these longer-term challenges. For those firms with cash on hand, the strategic purchase of distressed assets could present an attractive long-term growth proposition.
Key finding:
AI is a nascent concept in the sector to date and a key opportunity
If 2023 has taught us anything, it’s that the Artificial Intelligence revolution has officially arrived — fundamentally shifting how business is conducted and the future of work across industries. Yet, in our survey of real estate executives, 52% of respondents reported that they have not yet started their AI journey. At a time when efficiency in business operations is paramount, the adoption of AI technology presents a sizable opportunity for early adopters in the sector.
In fact, according to recent Pitchbook data and Jones Lang LaSalle (JLL) Research, AI and generative AI are listed as the technologies expected to have the greatest impact on real estate over the next three years by investors and developers.
Are you adopting Artificial Intelligence (AI) into your operations?
When asked to elaborate on the opportunity at hand, our respondents indicated that AI could be leveraged across several focus areas, including:
- Property operating efficiency
- Accounting operating efficiency
- Contracts/legal reviews
- Sourcing assets for acquisitions
- Sourcing buyers for existing assets
Implications:
Now is the time to consider how AI can add value to your operations. First movers will be in a position to maximize their efficiency and potentially boost performance against their competition. But where do you start? The first step is to determine where your people are already using AI within your organization. This will help identify areas that are ripe for AI integration. Next is pinpointing use cases to start with. Perhaps that scenario involves addressing a known pain point or helping you do more of something in which you excel. These are areas where AI could make a sizable impact on your day-to-day operations and your business output.
Key finding:
Tech spending is holding firm despite headwinds
Our 2024 real estate market survey results revealed that despite the current economic challenges, respondents anticipate their IT budgets will stay the course in 2024. Specifically, among those surveyed:
- 64% responded that IT budgets would increase between zero and 10%, and
- 33% responded that their IT spending is expected to increase by 10% to 20%.
This is fairly consistent with last year’s findings, in which:
- 67% responded that IT budgets would rise by 0 to 10%, and
- 30% responded their tech spending would increase between 10% to 20%.
Recent JLL research confirms these sentiments, finding that commercial real estate occupiers are “willing to put their money where the tech is.” Over 80% of companies are increasing technology budgets, despite a challenging operating environment. Further, real estate technology budgets are set to grow faster than investments in headcount, footprint and operating budgets.
Do you expect your IT budget to increase in 2024? Approximately what percentage increase are you planning for?
Implications:
As technology continues to propel various sectors, from healthcare to finance, the AI market is predicted to manifest expansive growth — creating a hotspot for development and capital acquisition. The mounting adoption of cloud-based applications and services, paired with the escalating need for intelligent virtual assistants, is also spurring growth. Capital is actively seeking these projects with enthusiasm, as financial institutions look for stable cash flow assets.
Against this shifting landscape, technology investment remains a priority for real estate firms — which is good news since many firms’ legacy systems need modernization. Keeping the foot on the gas on strategic IT spending on the right technology is a critical factor for firms navigating massive change and uncertainty.
It’s also worth noting that with technology investment often comes significant infrastructure requirements. This represents a rapidly evolving and potentially promising investment opportunity expected to thrive in the coming years.
Key takeaways
Despite current economic headwinds and concerns like the high cost of capital and slowing economic conditions, our survey respondents found reasons to be optimistic as they look ahead to 2024. For example, they’re maintaining the acceleration of technology investment and exploring acquisition opportunities where it makes the most sense to prepare for future growth. Generally speaking, real estate firms have been slow to integrate innovative technology into their business models — a trend validated by our survey results. With automation and data-driven decisions being key drivers to future growth, we believe that those willing to blaze the AI trial in the real estate industry will come out ahead in the months and years to come.
How BPM can help
Our optimism sets us apart, as we identify opportunities to surpass the competition even in challenging market conditions. BPM’s experienced professionals can help you navigate these challenging waters — offering strategic guidance, financial insights, tax strategies and much more. Let us help you embrace the new innovations that will both help you weather the current storms and chart the path for future growth.
Contact us today to start planning ahead for 2024
BPM Real Estate Industry Group
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