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CBRE: Artificial Intelligence To Take Big Bite Out Of Demand For Office Space

San Francisco skyline

Office buildings across the country are facing their lowest occupancy on record and more than 1B SF is at risk of becoming obsolete — but another existential threat is just around the corner.

Artificial intelligence is expected to replace 85 million jobs by 2025, according to a report from the World Economic Forum. That has implications for real estate, CBRE Investment Management Chief Investment Officer for Americas Direct Real Estate Strategies Julie Ingersoll said.

“If we lose 25% of our jobs in the United States — think coding jobs, secretarial, even sales-related roles — what is that downstream impact going to be on office, when we already have a 55-year high of office vacancy?” Ingersoll said at a CBRE IM media event Wednesday. “We think it’s going to have a pretty deleterious impact on office demand.”

Some of the sectors that are going to be heavily impacted include regulatory governmental roles and tech, she said. But others may come as a surprise. One of CBRE IM’s student housing partners recently leased 60% of all of its housing for the next academic year using AI, rather than brokers and in-person tours.

Municipalities with diverse economies will fare better, she said. But places with a concentration of sectors — like government jobs in Washington, D.C., or tech jobs in Santa Clara — may be hit with another wave of office vacancies, just a few years after the pandemic hollowed out demand for office space in those same cities.

“Diversification is key. We kind of saw this in the lockdown and the coming back to office movement,” said Wei Luo, a director of research at CBRE Investment Management.

Seattle and San Francisco are good examples of cities where the concentration of tech workers, who are more likely to work remotely than those in financial or legal roles, resulted in difficulties for the office sector that persist to this day, she said. 

“All those tech centers got hit very hard,” Luo said.

While it’s unclear exactly which jobs will be replaced by AI and when, the repetitive nature of coding jobs means some of those same cities could be at risk, she said. 

The only way to counter the effect on office assets is through public-private partnerships, CBRE IM Global Chief Investment Officer Kim Hourihan said.

“There will be some buildings that are easy to convert to apartments, but most are not,” she said.

One blueprint for how the office sector could fare as it faces the next set of challenges is regional malls, Ingersoll said. In Calgary, the government offered subsidies worth $75 per SF on the day that multifamily developments on the site of a former regional mall were delivered, turning an underperforming asset into something that the city actually needed.

“People ask me all the time, ‘Can office be data centers? Can office be warehouses? Can office be life sciences?’” she said. “In most cases, as we've seen with regional malls, the answer is: it's worth its land value. The highest and best use is to scrap it and build something else.”