Deutsche Bank: Software vs Hardware — AI Tool to Determine Which Sub-Markets and Companies Could Be Most at Risk
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Deutsche Bank published a report exploring the potential impact of artificial intelligence on the UK real estate sector, with a primary focus on office properties. The analysis presents a dual narrative: AI could reduce office demand through workforce displacement, but it may also generate positive effects by creating new industries and boosting productivity.
London is ranked as Europe's most AI-resilient office market due to its deep talent pool and venture capital. AI companies are actively expanding, with Colliers reporting 700,000 square feet of active search demand. However, bearish indicators remain. Research indicates that job postings for highly AI-exposed roles have dropped significantly, and the IMF estimates that 30% of the UK workforce faces high replacement risk.
Utilizing its proprietary dbLumina AI tool, Deutsche Bank forecasts three phases of AI integration. The current phase, through 2028, will automate 5-15% of office tasks. By the second phase (2027-2032), 30-40% of tasks could be automated. This progression is expected to widen the polarization in the office market. Prime assets will benefit from limited supply and modern requirements, while lower-quality assets face structural headwinds.
Currently, specialized office REITs trade at an average discount of roughly 40% to their net tangible assets. The market may have already partially priced in these AI risks. The report also highlights opportunities in data centers and logistics, emphasizing the critical importance of robust power supply and modernized facilities.