Artificial intelligence heralds a new era for the build to rent sector
In the United States alone, AI companies are predicted to have a 1.6m sq m real estate footprint by the end of 2023, according to JLL.
Aside from the immediate impact the technology’s rise is having on the demand for office space and supporting infrastructure, including data centres, AI has the potential to change real estate at an industry level – providing a valuable tool for developers, investors, agents and operators that can successfully harness its capabilities and use it to their benefit.
One part of the market where AI could bring about significant change is build to rent (BTR).
The development of AI is sparking innovations across BTR. In the UK, it is enabling owners and operators to secure new insights into their developments and future projects.
As in other sectors, there is a fear that AI will alter the future of BTR and its workforce needs. While AI can no longer be ignored by businesses given its potential to automate a range of existing tasks and processes, the idea that the technology will completely remove all jobs from humans is unlikely to materialise.
Rather, in the BTR sector, its uptake will likely be as a tool that can supplement, streamline and improve the work of real estate professionals and the systems they operate.
To benefit from the improvements it can deliver, however, those operating in BTR will need to stay ahead of the curve and pinpoint where it could best be used to improve overall service and customer experience.
Managing properties, in particular, can be time-consuming and involve significant admin.
Given the focus of BTR operators on providing a quality and all-encompassing living experience, BTR developers and operators could consider using AI to automate or streamline tasks, such as rent collection, maintenance scheduling, waste management and filtering tenant requests.
Online AI tools such as virtual assistants and chatbots already have the functionality to help property managers to quickly respond to tenant queries – either resolving them without the need for direct workforce intervention, or escalating to second-line human support.
There are also instances of AI algorithms being used to predict maintenance requirements in advance of issues arising, before then scheduling the required repairs. This can be utilised across building systems, including water, electric, heating, ventilation and air conditioning.
While helping to reduce repair costs that would otherwise spiral if left unchecked, AI may also be key to bringing in the technology needed for management teams to work proactively in monitoring and preventing issues, rather than intervening on a reactive basis.
The ability to successfully navigate the BTR market is already heavily reliant on data.
By deploying AI’s ability to interpret data quicker and more efficiently, landlords and letting agents can also implement measures aimed at reducing issues such as void periods, arrears, evictions, and otherwise maintaining a higher level of tenant satisfaction.
Away from property management, AI may also support the process of identifying or evaluating investment opportunities. Whether it’s understanding different geographies, potential tenants, yields or land prices, AI can provide an additional tool for investors and developers when analysing and anticipating market trends. It could also be used to help predict the likelihood of lease renewals, while identifying factors that contribute to tenant turnover, helping to reduce potential risk and maximizing return on investment.
The BTR sector has led the way in recent years when it comes to the environment, with firms like Aviva Investors and Packaged Living driving forward the development of energy-efficient homes for rent, embracing air source heat pumps and electric-only energy solutions.
AI has the potential to further cement the sector’s progress in this area.
With developers now routinely installing smart thermostats and other smart appliances, AI solutions have the potential to be used to not only monitor energy consumption, but also make real-time recommendations to improve a building’s energy efficiency and lower costs.
This is only likely to become more valuable given regulatory bodies’ increasing requirements for investment properties to provide transparency about factors such as a building’s emissions and energy consumption, both in construction and over its projected lifespan.
AI technology is also likely to have important applications in the design and construction phase of projects. It can aid developers when modelling a building and identifying the measures that could viably be taken to make the development more sustainable. This is alongside monitoring a project’s overall progress – keeping schemes on track and to budget.
When built, interlinking developments with AI systems may help tenants to better connect with their homes. Smart home technology such as an Alexa, Google Assistant or HomeKit can carry out tasks for residents, adding another dimension to the BTR living experience.
Though AI has the potential to bring measurable improvements in the BTR sector, developers, investors, agents and operators will need to ensure these solutions are deployed in a way that complies with relevant legal requirements.
At a global level, legislators in all major economies, including the UK, are looking closely at how AI can effectively be regulated. It’s likely that the next few years will see increasingly concrete statutory requirements around the use of the technology.
The EU, for example, is already in the final stages of implementing the AI Act, a significant regulatory regime that will regulate AI based on the level of harm it could cause, and will extend in its reach beyond the EU’s borders. Equivalent legal requirements are likely to follow in the US and UK, albeit not necessarily following the EU’s template.
Existing legal requirements, however, are likely to have just as much impact on the use of AI by BTR companies in the UK.
Data protection requirements, in particular, will apply to AI systems in exactly the same way as they do elsewhere. Given AI’s heavy reliance on data, any use of personal or sensitive data – for example information relating to occupiers and their use of a building – will need to be subject to appropriate levels of protection from unauthorised use or disclosure.
Where AI makes recommendations regarding the management or operation of a building, or takes decisions likely to impact occupiers, the company relying on those recommendations should also ensure these remain subject to appropriate levels of human assurance and oversight, to avoid unintended - and potentially significant - liability.
These factors can be effectively managed through the implementation of appropriate governance and legal compliance processes at all stages of deploying AI – from initial identification of solutions, through the contracting process and ongoing oversight of its use.
Fuelled by strong levels of investment, BTR is undergoing its own period of growth. New players are entering the sector and as an increasing number of developments are brought forward across the UK, the market is only likely to become more competitive.
Harnessing the potential of AI and AI-powered technologies could therefore provide developers and operators with the opportunity to standout and innovate. It’s also a chance to keep elevating the BTR living experience, which is critical to sustaining the sector’s growth.
Those that implement these technologies effectively, while complying with the relevant legal requirements, will steal a march on their competitors.
Judy Fawcett is a partner and co-head of Shoosmiths’ living sector, Alex Kirkhope is an IT and technology partner and leads Shoosmiths’ AI advisory team.
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