Even more office jobs are expected to vanish, leaving even more vacant space behind.
ByWolf RichterforWOLF STREET.
Offices are already being abandoned on a large scale by companies that want to reduce their useless office space. Office availability rates in major cities have soared to 25% and even to 30%-plus, and have triggered massive repricing of office properties.
And now they’re facing another “existential threat”: AI. That’s what the CRE industry is worrying about.
Generative AI is already everywhere for all to see and hear and talk to, from articles in major publications to chatbots that annoy already exasperated consumers to no end. It’s heavily used in tech. It’s used in healthcare from writing up diagnoses produced by automated equipment to generating patient visit summaries off of recordings – stuff that humans had to do.
It’s a lot better than it used to be, but it’s still apt to produce hilarity. For example, the AI-generated headline on the Bloomberg Terminal today, by Bloomberg Automation: “Berkshire Hathaway Declines 100%, Most in at Least 36 Years,” it said about the technical glitch at the NYSE that caused Berkshire Hathaway Class A shares to briefly plunge by 99%, before the glitch was corrected. And in the text, it said hilariously: “the stock reversed the previous session’s gain… The stock was the worst performer among its peers.” And it failed to provide the most important context: that this was a technical glitch.
AI-generated stories have been published for years. Sometimes they’re reviewed or edited by a human, and sometimes they’re not. Even if they’re reviewed by a human, or if a human reporter used AI to generate a big part of the story, one human can now do the work that 10 or 20 humans would have done before. Sure, AI is known to produce “fluent bullsh*t,” but so are humans. And humans need editors too. And AI is starting to replace humans in these offices. And not just in publishing.
Cities with a concentration of sectors – such as tech jobs in Santa Clara – may be hit with a new wave of office vacancies, Julie Ingersoll, Chief Investment Officer for Americas Direct Real Estate Strategies at CBRE Investment Management, said at a CBRE event, according to Bisnow Commercial Real Estate News. Which jobs and the timing are uncertain.
“If we lose 25% of our [office] 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.”
“We think it’s going to have a pretty deleterious impact on office demand,” she said.
The sectors that are impacted span the spectrum. She cited one of CBRE IM’s student housing partners that recently leased 60% of all of its housing for the next academic year using AI, rather than brokers and in-person tours, according to Bisnow. She cited regulatory governmental roles and tech jobs.
The repetitive nature of many coding jobs means some office markets in tech centers could be at risk, Wei Luo, a director of research at CBRE IM, said.
This looming depopulation of offices due to AI would be in addition to the already rampant depopulation of offices due to working from home, and it would be in addition to the aftermath of “the War for Space” before the pandemic, when vast amounts of office space was grabbed for future use, and remained vacant, as companies expected to grow into it. But as working from home took over, they then decided they wouldn’t need that vacant office space and put it out on the sublease market, turning office shortages in the hottest office markets, such as San Francisco, into historic office gluts.
So now what?
“There will be some buildings that are easy to convert to apartments, but most are not,” said Kim Hourihan, Chief Investment Officer at CBRE IM, according to Bisnow.
“People ask me all the time, ‘Can office be data centers? Can office be warehouses? Can office be life sciences?’” Hourihan 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.”
Surely, AI will also create a lot of office jobs, such as the roles involved in making AI work, improving it, and untangling the messes it creates on a daily basis. But a lot of office jobs that humans used to do are already getting done by AI, and many more will be done by AI (we can also see that many of the jobs that will be done by AI are now getting done by humans working at home, so there’s that). And for the CRE industry, this will be the next wave in the existential crisis of the office.
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