Wave Of The Future: The Effect Of AI And Robotics On Commercial Real Estate

by Seyfarth Shaw LLP
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[co-author: Raymond Tran]

Various areas of commercial real estate stand to experience significant changes in the coming years as artificial intelligence (AI) and other technological advances change the ways businesses carry out their day-to-day operations. One of the greatest advancements in AI is the emergence of industrial robots capable of autonomous and intelligent action. Advancements in AI enable robots to employ complex motion planning, and, when coupled with other emerging technologies, such as visual detection, may eventually result in a significant decrease in the demand for traditional human labor. In recent years, a number of major retailers and other business have begun to expand the role of AI and other technologies in their operations. For instance, Amazon has invested heavily in automating its fulfillment centers, and JD.com, in connection with Mujin, has recently rolled out the first completely humanless warehouse, in Tokyo.

The integration of robots and other AI into larger networks via the internet and other connectivity portals, generally referred to as the “Internet of Things” or “IoT”, highlights additional considerations in real estate and other markets, as businesses and property owners consider the benefits and drawbacks that accompany these new technologies. Because the internet is more widely available and the cost of connecting and computing is decreasing, entire networks of connected “things” and people can be created. This network, the IoT network, is capable of providing large-scale, real-time data that stands to have a profound impact on how commercial real estate professionals manage and operate their properties.

Property Management

Usage of IoT in commercial real estate has grown significantly in recent years. It has been said that if a commercial building is not “collecting, storing, using, and learning from data”, then the building is not maximizing its competitive advantage. Buildings are operated through a system of facility devices: security systems, lighting, HVAC, elevators, etc., and if such systems can be connected to a larger network of devices, as well as the personal devices of tenants or patrons, valuable data can be analyzed and used to maximize competitive advantages to a degree that has not previously been possible.

Connecting a building’s operation system with the IoT creates more sophisticated networks, enabling centralized and customizable control of a building’s operations. Everything from turning off appliances, controlling HVAC, and even monitoring air quality, can be controlled via connections to the internet. Facilities like street lights and utility meters can be linked to the building, devices and the internet, providing the owner with greater means to remotely monitor and control all that happens in the building. A unified, aggregated platform for communication and analysis enables owners to improve performance, maximize occupancy, and increase tenant satisfaction.

The optimization capabilities of the IoT combined with the cost-saving force of robot-driven labor may cause a shift in our understanding of how a warehouse facility is managed. Facilities will be connected with customers through new channels and platforms, allowing tenants to meet the increased expectations of their customers. Owners will also be able to customize services for their tenants, which could also decrease vacancy risks.

Market Expansion

A world where robots replace humans in performing simple tasks like lifting, moving, and sorting inventory in warehouses is no longer pure science fiction. Robots are already being put to use in warehouses across the globe, pulling crates, sorting inventory and completing a multitude of other tasks that have generally been performed by hourly workers.

Although the current technology is still developing, warehouses from China to Britain are racing towards full automation. Robots can not only perform basic labor functions, such as moving inventory and operating forklifts, but also complex tasks like mapping pipes inside walls and monitoring subtle changes in temperature. Technology has enabled robots to not only fill positions traditionally held by human workers, but also to do more, 24 hours a day, 7 days a week, without risk of exhaustion or injury.

With the demand for human labor decreasing, companies may consider more remote options where both land and operating expenses will be cheaper. In turn, certain markets that might traditionally not be in the running for significant commercial real estate investments (for instance, rural or agricultural areas) may become more competitive with the rise of AI implementation in business. For example, if there is no need for readily available public transportation for the workforce or for nearby housing options, a busy warehouse could be placed in rural North Dakota, where the land and operations are more affordable than in metropolitan areas. In this way, AI and the implementation of robotic workforces may lead to opportunities for underdeveloped markets to grow exponentially in the coming years.

Predictive Maintenance

Most properties currently rely on what is known as preventive maintenance, meaning that facility managers conduct periodic inspections, as recommended by industry norms or required by law. With the implementation of newer technology, AI and the interconnectivity of the IoT, however, larger and more accurate data sets can be more readily available, which may shift the model to one which leans more heavily on predictive maintenance. Property owners and building managers may be able to more accurately predict when maintenance will be required, resulting in far less disruption to commercial activities and greater control over maintenance budgets. Another, albeit slightly less tangible, benefit to predictive maintenance is that we may eventually see a decreased need for the types of complicated calculations for operating expenses and maintenance costs that are often needed in today’s commercial leases.

Environment and Safety

Robotic devices can check, measure, and monitor environmental qualities using various interconnected sensors throughout a project or network of buildings. These devices can do things that humans cannot, like use ultrasonic waves to map pipes or read the body temperature of patrons walking into an elevator. With the ability to measure and monitor the people and environment around and inside a building, the overall environment can be kept healthier and more comfortable. Accurate detection of air particles and temperature can reduce the spread of airborne diseases during flu season. Security systems from a building two blocks away can activate safety devices and keep tenants safe. In the middle of the night, detection of high temperatures from an overheated machine can prevent a fire from spreading.

The improved capabilities of robots and the IoT to monitor, inspect, and repair equipment also pave the way for the introduction of prefabricated components into industrial warehouse spaces. Prefabricated components ensure faster and more cost-effective construction, and reduce construction waste and time. Heavy equipment can be replaced with sensors that can be controlled using indicators like vibrations or temperature fluctuations. Greater inspection, tracking, inventory, and safety capabilities save energy, time, and costs for developers, investors, construction companies, and lenders. Additionally, decreased risks in these areas may change the way that certain types of insurance and indemnities are handled in the real estate arena. Today’s standard commercial leases often include many pages of complicated language dealing with risk of loss, insurance and casualty, but newer technologies promoting safety and security may reduce the need for some of these items or may change the way such provisions are written and negotiated.

Data Centers and Power Grids

Of course, not all of the implications of AI and IoT on the commercial real estate market are immediately positive. There are also a number of potential drawbacks and stumbling blocks that will have to be explored as these technologies are integrated into business. A greater reliance on the internet and network integration of devices means that cybercrimes and hacking pose a more tangible risk to AI-friendly businesses, with much higher stakes. As robotics advance and the IoT makes “Smart Buildings” the norm, digital, cyber, and physical security of devices will need to increase in sophistication and complexity.

Additionally, concerns about the availability and infrastructure of power grids and data centers may become more prevalent. Increased usage of robots, security and monitoring devices and other equipment and facilities within the IoT universe will almost certainly result in an increased need for data and power centers to provide the bandwidth and electricity for these advancements to function. Because data centers must survive power outages, they must be built with independent feeds from more than one power grid, which makes location and land critical. Data centers and power plants are expensive to build and require sophisticated negotiation of leases, contracts and other documentation, which could have a meaningful impact on the legal profession as it relates to commercial real estate.

Looking forward

Advancements in AI robotics and integration with the IoT have the potential to change the way that commercial properties are owned, leased, managed and operated in the future. Large scale access to real-time data will enable owners and operators to increase efficiency and cut costs through predictive maintenance, analytics, and tailored tenant services. This data will likely drive development and investment decisions and amplify the demand for security services, data centers, and increased access to power sources, and may even change, to some extent, the roles that are currently played by various real estate professionals, including property managers and lawyers.  The rise of smart buildings may give way to the emergence of smart cities, making what was once science fiction an entirely new reality, and the full effect on today’s real estate market remains to be seen.


 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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