Future generation

Openness to innovation in the area of AI and the trend of transforming “analogue” buildings into “intelligent” ones is now not only a mere option. Advanced solutions based on artificial intelligence have started to accompany all stages of the investment process, from the concept stage and the profitability analysis of the project, through the due diligence process, and up to and including the operating phase. However, the sharp rise in the expectations of real estate market players has created a number of challenges in terms of the potential of artificial intelligence.

AI in the spotlight

Generative AI is a kind of artificial intelligence which, using advanced machine learning models and based on specific data resources, can generate various types of content, such as text, pictures and other media. But information technology itself has actually been used to support commercialisation and asset portfolio management in the real estate sector for many years.

Now, with the help of advanced algorithms, it has become possible to predict market trends with ever-increasing precision, to create incredibly accurate visualisations, to increase the speed of decision-making processes and to improve the level of services. By analysing the construction potential of real estate using AI, it is now possible to present the most optimal design variants on the basis of the desired investment parameters, in accordance with local law, building regulations and investors’ requirements, and taking into consideration the estimated projected costs and revenues.

AI opens the door to a wide range of opportunities with respect to analysing commercial property users’ behaviour and can contribute to achieving ESG objectives, thus translating into improved energy efficiency as well as user comfort, safety and convenience. The processing of data from such sources as surveillance cameras, access control systems and motion sensors enables us to optimise the level of light intensity, the temperature and the spatial layout of the building, and, in particular, to identify the demand for the reorganisation of certain space, while helping to minimise downtimes through responding proactively to the potential wear and tear of equipment.

As proptech solutions become increasingly advanced, they can stimulate real estate market players to implement further innovative solutions and consequently increase their expenditure in this area. However, this process could be improved, as it is still inhibited by the lack of access to larger quantities of data that cannot be adequately shared or processed publicly due to the sensitivity and insufficient digitalisation of such data and the regulatory restrictions imposed upon it.

Chances and risks for business

The creative use of AI, which will certainly improve time resources when it comes to repetitive or manual activities and as well as the day-to-day work of tenants, managers and developers, nevertheless faces numerous ethical and practical challenges. Representatives of the AI sector emphasise that the risks arising from the use of AI make it necessary to clearly define the tools that are to be responsible for generating prompts, and those responsible for the automatism of direct actions. The fact that AI does not have the capacity to differentiate between true and false statements or understand the intention or context of a situation, and that it fills in information gaps with self-created fictitious content (which is subsequently used in further processes), means that oversight will be necessary as a key step towards ensuring safety and control.

Despite the range of risks accompanying digitalisation, due to the advantages of AI-based solutions its implementation has become an irreversible process. According to the representatives of one Polish start-up operating in the proptech sector, advanced technology has made it possible to analyse selected assets using vast amounts of data, allowing the valuation of an office building to be carried out in less than half a minute.

Regulatory challenges

The challenges related to the use of generative AI are very wide and encompass, among other issues, those related to liability, personal data protection and intellectual property rights. In June 2023, the European Parliament adopted a position on the drafting of the AI Act, which will regulate certain aspects of the use of artificial intelligence, including, in particular, the obligations of AI suppliers, importers and distributors. If the final wording is agreed and adopted, this act will apply without the need for further implementation under the legal regimes of the EU member states. Along with the discussion over the AI Act, work is also underway on a directive concerning non-contractual civil liability for artificial intelligence, which is intended to strengthen the legal protection for individuals whose rights could be infringed by certain AI processes.

In accordance with the recommendation adopted by the European Commission on October 3rd, 2023, artificial intelligence was listed as one of ten technological fields critical to the EU’s economic security and the potential of which is to be further assessed in cooperation with member states. We should thus expect EU bodies to engage in further regulatory activities to address the risks and obligations related to the implementation of AI in the near future.

Actively observing, but still at a distance

The high costs of AI implementation constitute a limitation to the full exploitation of the potential of this technology in the commercial real estate sector. A short-sighted perspective is thus likely to predominate, in particular with respect to ageing real estate, for which costly innovation expenditure might not translate into the revenue growth expected. However, bearing in mind that process automation using generative artificial intelligence is set to progress at an ever-increasing pace, acting as a mere observer of trends without having a prudent financial strategy in place and then gradually integrating certain solutions into one’s own business model may turn out to be an insufficient approach. AI implementation will certainly have a transformative effect on our work models and the evolution of the roles of real estate market players, including architects, developers and managers as well as technical, legal and commercial advisors. Despite the fears that over a longer timeframe AI will replace some of these functions, the conclusion is being increasingly reached that cooperation between artificial intelligence and human resources will be the most effective way forward. The data management strategy, data digitalisation and the approach to transparency and data security will remain crucial in achieving our digital transformation goals.

About Baker McKenzie

The law firm has had an office in Poland since 1992, where it currently employs 160 lawyers and tax advisors. The Warsaw office provides legal services to both international corporations and local businesses. Baker McKenzie offers comprehensive legal and tax consultancy services across almost every field of economic law.