“Arguably AI has been the fastest-adopted business technology in history... It has sparked an an arms race between all of the world’s leading tech companies.” Sureel Choksi, Chief Executive of Vantage, one of the world’s largest data-center developers, was quoted in the Wall Street Journal.
So welcome to the new world where Artificial Intelligence (AI) is shaking up the game in not only commercial leasing but the globe at large. New advancements could stand to be the most disruptive work technology we've witnessed since the printing press, and companies are racing to earn their place in the revolution.
In CRE, the evolution of how AI will fully play out is a hot topic. From data centers to tech hubs and smart buildings, AI is leaving its mark on these spaces, bringing about changes, challenges, and opportunities that redefine how we experience and engage with modern workplaces. So, let’s discuss the biggest affects AI is having on the commercial world. Because the changes are coming, it’s on you to be prepared.
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1. New Demand for Data Centers
The advent of Artificial Intelligence (AI) has sparked a surge in interest and activity in the data center industry, with prominent tech companies such as Microsoft, Google, Oracle, and Amazon Web Services driving significant demand.
The competition in this arena is fierce, with companies racing to secure a competitive edge on the new frontier of AI. The data center industry, responsible for housing the internet, experienced a remarkable acceleration last year as both individuals and businesses widely adopted AI tools.
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“The leasing spree is led by hyperscale operators placing huge bets on AI, who want to ensure access to data center space to house power-hungry server hardware for new generative AI applications.” The Data Center Frontier |
The considerable processing and storage need for AI have thrust data center development into the spotlight, with hyperscale sites expected to double globally by 2024, according to industry data.
And as generative AI technology becomes seamlessly integrated into everyday life, the need for complex data centers will continue to grow. And as technology grows in complexity, so will the size of the footprint needed to accommodate large-scale energy requirements.
Major Power Requirements
The trend toward larger campus builds, exceeding 100 megawatts, has become commonplace, a stark shift from the past when a 20-megawatt requirement was considered large.
And there’s still challenges to work around. The increasing power requirements of modern technology, particularly in sought-after locations, are giving rise to electricity shortages. This shortfall prompts concerns about the feasibility of accommodating the rapid expansion of power-hungry technologies, even if regulatory constraints are removed.
In some of the most desirable locations, where the demand for cutting-edge technology is high, electricity shortages pose a significant challenge. The strain on power infrastructure raises questions about the capacity of these areas to support the ambitious growth plans of technology companies.
Even if regulations are eased, the availability and sustainability of electricity will become critical factors influencing the scalability of power-intensive technologies in these prime locations. These dynamics underscore the intricate relationship between technological advancements and the infrastructure necessary to sustain them.
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“Irrespective of all the concerns being raised, I think the genie is out of the bottle on AI,” Lee Wittlinger of Silver Lake, a Tech Investment Firm |
In addition to the growing scale, the environmental impact of these facilities is under scrutiny, pushing operators to emphasize sustainability and energy efficiency.
The industry is responding with improvements in technology and a greater adoption of renewable energy sources, aligning with the broader trend toward greener practices in the data center sector. The confluence of AI advancements, hyperscale development, and environmental considerations is propelling the data center industry into a new era of growth and innovation.
2. AI Leasing in Established Tech Hubs
Despite the significant strides in remote work capabilities and virtual communication tools, professionals in the AI field continue to place a high value on physical office spaces. Many AI startups and practitioners emphasize the importance of in-person collaboration, making the AI sector a driving force in new leasing transactions within the tech industry.
The demand for specialized skillsets in AI is anticipated to soar with the continuous evolution of this technology. The ongoing war for talent is already influencing decisions for both AI companies and investors, shaping choices on the optimal locations for establishing operations. Because of this, AI companies often emerge in established markets, particularly within major technology hubs and in close proximity to renowned academic institutions.
This strategic positioning allows them to tap into vibrant technology ecosystems and access a pool of skilled AI engineers and technical talents. While it might seem counterintuitive for a cutting-edge industry to gravitate towards areas seemingly haunted by empty offices, the move actually aligns with a practical rationale.
San Francisco, once hailed as the tech capital of the world, has become an attractive hub for AI companies. Leveraging the city's renowned reputation and taking advantage of a notable devaluation in property values in recent years, AI enterprises find themselves in a perfect storm.
This confluence of factors presents an opportunity for the AI sector to secure prime spaces in a market that is both established and currently undergoing a transformation, creating an environment conducive to innovation and growth.
Internationally, London, Taiwan, and Shanghai are experiencing the same phenomenon. As previously established tech hubs, they are now experiencing a renaissance with new interest in the expansion of AI.
3. Smart Buildings, Enabled by AI
The rise of AI is ushering in a new era for offices and workplaces, making high-tech features increasingly common.
Leasing properties equipped with AI-driven technologies can often give businesses a competitive edge. Natural evolution in this field is transforming the traditional workplace experience.
Because AI has the potential to completely redefine how office spaces are utilized and experienced.
With advancements in smart building technologies, properties are becoming more responsive and adaptive to individual preferences. For instance, AI-powered offices can dynamically adjust lighting, temperature, and even desk configurations based on real-time data and user behavior patterns. This level of personalization not only enhances comfort but also contributes to increased productivity and job satisfaction among occupants.
This may sound like we’re still a few years out from witnessing the full power of such technology. But it’s already being included in cutting-edge offices. In Microsoft's Redmond headquarters, AI collects and analyzes data from sensors to gain insights into employees' behavior patterns. This data-driven approach allows the workplace to anticipate individual environment needs.
Improving Portfolio and Property Efficiency
One of the key values of leasing high-tech properties lies in the optimization of operational efficiency. AI applications can analyze data on space utilization, employee movement, and environmental factors to provide valuable insights.
With this information at their finger tips, businesses can make informed decisions regarding space planning, resource allocation, and energy efficiency, ultimately leading to cost savings and sustainability benefits.
AI can streamline property searches by utilizing machine learning algorithms to match properties according to certain pre-defined criteria like price range, location, preferences, etc. Similarly AI can employ predictive analytics to assess market trends and potential risks, helping CRE professionals make informed long-term decisions and mitigate challenges.
Improved Safety
Moreover, AI contributes to creating a safer and more secure work environment. Smart security systems, powered by AI, can monitor and analyze real-time footage, detect anomalies, and respond proactively to potential risks. This not only enhances the safety of occupants but also adds an extra layer of protection for valuable assets within the property.
Keeping Up with a Hybrid-Friendly World
The integration of AI in high-tech offices also aligns with the growing demand for flexible and collaborative work environments.
AI-driven technologies facilitate seamless communication, virtual collaboration, and efficient task automation, fostering a dynamic and innovative workplace culture. This adaptability is particularly valuable in the context of changing work trends, such as remote work and hybrid models.
New Technology = New Freedom for Tenants
As tenants navigating the dynamic landscape of leasing and commercial real estate amidst the AI revolution, seize the opportunities this transformative wave brings. From tech hubs buzzing with innovation to smart buildings adapting to your needs, the future is yours to shape.
Embrace the power of AI, find spaces that resonate with your vision, and ride the wave of innovation. The era of personalized, efficient, and tech-infused workspaces is here—make it work for you!
Stay on top of the trends that will land you with the strongest portfolio and best offices for the best prices. Subscribe to our blog to learn the latest in the CRE world.
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