Prologis CEO Hamid Moghadam recently made a bold statement that the rise of artificial intelligence (AI) could be as pivotal for his San Francisco-based Real Estate Investment Trust (REIT) as the advent of e-commerce in the late 1990s. With a track record of steering Prologis in the right direction during times of technological disruption, his words carry significant weight. Moghadam’s belief in the transformative power of AI is not an isolated sentiment, and it aligns with a broader trend in the real estate industry, where AI is being recognized as a game-changer.
Moghadam, known for his ability to “see around the corner,” famously guided Prologis away from retail shopping centers as e-commerce started to take off. Now, he sees AI as the next revolutionary force in real estate. During Prologis’ annual Groundbreakers event, he emphasized the importance of embracing AI, stating, “The message that we’ve been hearing from a lot of people: embrace AI, or be left behind. So you believe that?,” Moghadam was asked at an event Prologis hosted last week. “I totally believe that,” he said. “And I would have said the same thing to you in 1998 about the internet, or ’97 about the internet, or actually, in ’99, about e-commerce.”
Prologis is already integrating AI into its operations, particularly in decision-making processes. Moghadam highlighted the significant impact of AI in determining lease terms and pricing. “What do we charge for a lease, how long of a lease do we sign…basically, all of the decisions that go around leasing with customers. Now we’re using a lot of AI to drive those decisions,” he explained. This shift allows Prologis to make more informed decisions that can enhance the profitability of its 1 billion-square-foot industrial portfolio.
Beyond lease-related decisions, Prologis is also leveraging AI to optimize its capital allocation within its existing portfolio. The technology aids in predicting where speculative investments are most likely to pay off before tenants even express interest. Additionally, AI helps identify the ideal locations within their network to establish electric vehicle charging infrastructure.
While Moghadam’s focus on AI is notable, he’s not alone in recognizing its potential in real estate. Ian Kaufman, Chief Accounting Officer for Equity Residential, a Chicago-based REIT, mentioned in 2018 that his firm had been exploring AI and big data to make better decisions. Kaufman’s statement underscores that the industry has been gradually moving towards AI adoption for several years, according to news reports.
However, it’s important to note that the recent launch of ChatGPT and similar technologies has made AI more accessible to a wider audience, making it more prominent in sectors already aware of its potential, such as real estate.
Studies and analyses support the belief that AI is poised to transform the real estate sector. Research from real estate brokerage JLL suggests that AI can accelerate transaction processes and enhance investor insights into market opportunities. German and American researchers published a paper in the Journal of Real Estate Finance and Economics, indicating that AI can bridge the gap between market valuations and actual selling prices of real estate assets, with particular relevance to apartments and industrial properties.