The Future of Artificial Intelligence in Real Estate Transactions
The European real estate sector continues to flourish but competition for deals is fierce and speed is often of the essence: so much so that, according to recent Drooms research1 over 50% of real estate professionals in Europe are compromising on the quality of their due diligence to complete transactions quickly. However, modern technology has […]
The European real estate sector continues to flourish but competition for deals is fierce and speed is often of the essence: so much so that, according to recent Drooms research1 over 50% of real estate professionals in Europe are compromising on the quality of their due diligence to complete transactions quickly.
However, modern technology has a solution for those seeking to complete real estate deals more efficiently. Where time pressures have led to a potential decrease in the quality of due diligence, parties to a transaction have found a solution in technology enabled with artificial intelligence (AI), such as virtual data rooms.1
Real Estate is big business
According to a Real Capital Analytics (RCA) report published in February 2018, Europe’s commercial property investment market returned to growth in 20172 as deals of more than €500 million in value accounted for almost one quarter of the year’s acquisition volume. The UK also regained its title as Europe’s largest market after its investment volume increased by 12% thanks to several large transactions such as CC Land’s purchase of the landmark Cheesegrater building for £1.15 billion.
Successful transactions like this depend ultimately on high quality and detailed due diligence but despite the high volumes of information that need to be processed, the real estate sector is still behind the curve in terms of technology and a significant number of important processes are still conducted manually.
The volume of documentation involved in real estate due diligence continues to grow exponentially and it is becoming increasingly important for key stakeholders to quickly and efficiently navigate their way through the mass of information involved and to focus on the key points.
Our survey1 clearly shows that over the past two years there has been an overall increased focus on due diligence and 73% of real estate professionals believe this focus will increase further over the coming year. For this reason, AI is increasingly being regarded as a solution for today and not technology for the future.
A closer look at the benefits
More than half (54%) of real estate professionals say that they use AI to improve the keyword search process when working on transactions. However, this figure rises to 69% of respondents who say they will be using AI for keyword searches in five years’ time. Other processes that will become more widely used include foreign language translation, identifying red flags, routing documents to the right decision-makers and topic-modelling.
The majority of real estate professionals believe that AI already benefits their firms’ and provides a competitive advantage by enabling a much higher volume and variety of documents to be searched at high speed. Almost the same number say that AI speeds up the due diligence process, while a third believe it improves the accuracy of decision-making. Other benefits of AI include minimising risks and liabilities in an overall deal, reduced reliance on legal services, the ability to automatically create contracts and reports and securing the best deals before other professionals.
The barriers facing AI
Despite these benefits, there are still perceived barriers preventing the uptake and use of AI in the real estate industry. The biggest of these is lack of confidence in AI’s ability to match human intelligence and decision-making (cited by 53%), followed by a lack of skills available to implement relevant AI technology (51%), technology being too difficult to use (41%), a lack of trust by senior management in AI (19%) and concern that AI will replace investment professionals’ roles (17%). Only 9% say the main barrier is a ‘lack of demand’.
What does the future hold?
As a pioneer in the digitisation of due diligence in real estate, Drooms’ technology is helping to change existing processes by integrating AI into its virtual data room (VDR). The aim when building AI into our VDR technology is to enable real estate professionals to reduce the amount of manual review work, eliminate unnecessary errors and reduce reliance on expensive third-party costs. We are just one example of the application of AI, but a very good one.
Crucially, this is not a battle of technology versus humans. Despite its ability to automate a tremendous number of processes, AI will always work best in conjunction with human skills and intelligence. AI needs to learn from human behaviour and there is no substitute for years of experience, instinct and knowledge. However, AI complements those elements and adds huge value by making real estate processes much more automated, efficient and cost-effective.
1Source: Drooms, April 2018 – The future of artificial intelligence in real estate transactions April 2018
2Source: Real Capital Analytics February 2018 – 2017 Year in Review edition of Europe Capital Trends.