Home Insights Real estate Hotels and offices: From operational upside to demand uncertainty in the age of AI
A cityscape view of many skyscrapers.

In this final installment of our artificial intelligence (AI) and real estate series, we turn our attention to two additional, yet distinct, property sectors: hotels and offices. In our view, hotels are positioned to experience positive, although marginal, gains from AI, primarily through operational efficiencies. Offices, by contrast, face a more nuanced outlook: while AI adoption in the near term may disrupt demand, over the longer term, technological advances have historically supported stronger economic growth and increased demand for commercial space.

Hotels: How technology may drive efficiencies and personalization

Hotels, along with other living sectors (including student housing, multifamily, single-family rentals, and senior living), comprise the ‘marginal gainers’ property group of our AI framework. This is because, in our view, companies operating in this space are set to benefit from the positive impact of AI technologies. However, we believe these benefits will primarily induce efficiency gains rather than shifting demand-supply fundamentals, as in the case of data centers, or creating entirely new business opportunities, such as for life sciences companies. Let’s analyze the hospitality sector in more detail.

At first glance, hotels may not be immediately associated with AI technologies. After all, the essence of hospitality is to provide a shelter and a memorable time, rather than relying on predictive algorithms. Hotels are inherently people-centric. Without the concierge, the receptionist, the chef and the housekeeper, it would be quite a challenge to deliver outstanding guest experiences. However, AI tools are set to play an increasingly important role in the future. These technologies have the potential to enhance efficiencies and improve customization all along the hotel’s value chain, from back-office operations such as marketing and revenue management, to front-desk activities like customer experience and concierge services. A study by consulting firm McKinsey noted that AI tools can lead to significant revenue growth for hotels and improved customer satisfaction by augmenting workforce capabilities, supplementing concierge consultations or expediting check-in processes. Not surprisingly, several large hotel brands are allocating internal resources or partnering with technology companies to implement these solutions. This trend was also highlighted by a survey conducted by Deloitte, a professional services firm, that found half of all hotel executives in their sample were exploring AI technologies for their businesses.

Hospitality has the lowest AI adoption rate, after the construction industry

Percentage of AI adoption by industry, 2023.

Percentage of AI adoption based on specific real estate sectors

Source: Includes enterprises with ten employees or more, grouped by International Standard Industrial Classification of All Economic Activities (ISIC) codes. OECD, Principal Real Estate, 2023.

Offices: Treading a fine line between AI-driven job creation and displacement

The travails of the office sector since the COVID-19 pandemic are well documented. Much like hotels, offices rely heavily on people to support their demand profile. Rapid enhancements in technology—even before the pandemic—have presented a headwind to office demand as well as complicated operating economics amid occupiers’ altered space utilization dynamics. While the hotel sector may be able to capitalize on AI advancements for greater efficiencies within its operating model, the same shift may translate into less square footage required by corporate occupiers if they correspond to reductions in office-using occupations.

Large-scale technological changes have long created a sense of uncertainty in the labor market and its participants. Perhaps one of the earliest examples is the Luddites, who destroyed machine looms during the European Industrial Revolution in fear that the new technology would wipe out jobs. Economists today refer to this as the “Luddite Fallacy,” which refers to fears that new technology will reduce the need for labor and can harm the economy. While structural shifts, such as AI, undoubtedly have significant short-term implications for certain occupations, they tend to be both productivity-enhancing and conducive to stronger job creation in newer and more innovative industries. David Autor, a leading labor economist at MIT, views AI as having the potential to automate tasks as well as human expertise.(1) While this would certainly eliminate certain commodity office jobs through automation, it also opens up opportunities for new capabilities and could improve job quality.

Productivity growth has historically led to overall employment growth

U.S. total employment vs productivity

Chart showing rising U.S. employment and productivity

Source: US Bureau of Labor Statistics, Principal Real Estate, Q1 2025

CONCLUSION

Technological innovation has typically led to uneven outcomes and shifts in wealth distribution. The real estate environment was not immune to that. In recent years, the rise of e-commerce and hybrid work has reshaped the fortunes of retail, logistics, office, and residential assets in different ways. Similarly, we believe the growing adoption of AI will have asymmetric effects across property sectors and markets over the next cycle. For instance, while hospitality may benefit from net efficiency gains, the outlook for the office sector could be more complex and nuanced. Historically, structural trends have driven performance divergence in the real estate sector. But in the new cycle, where yield compression may be limited, the income component and its underlying drivers will become even more critical in determining returns.

As AI technologies evolve, they will introduce new layers of disruption and opportunity. Investors should therefore assess their portfolios through a sector-specific lens, considering varying exposure to AI-driven change. For more of our thoughts on how AI is impacting the real estate market, read our full report.

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