CRE has settled on a comforting line about AI: judgement is what matters. It is true, it is safe to say on a stage, and it helps nobody.
Three times in one week I came across the same idea. A keynote slide told the room that competitive advantage lies in human wisdom applied through AI. A write-up of a conference panel concluded that the winners will be the firms with the best people who know how to use the tech. And a LinkedIn post from a PropTech builder argued that AI eats the commodity layer and fails at the judgement layer. The likes piled up. I nodded too, up to a point.
I have some sympathy. I’ve been banging the #HumanIsTheNewLuxury drum for years, and from the back of a room my version can sound much like theirs. The difference matters. Mine is a claim about where scarcity and pricing move when cognition gets cheap, and it comes with a demand that the work itself be redesigned. The version doing the rounds this week gives permission to carry on as before, with better tools.
In August I argued that ‘human judgement has a timestamp’: the boundary between what machines and people do well keeps moving, so any division of labour needs a date on it. This piece asks a different question. If the judgement line is so obviously incomplete, why does the industry keep saying it?
All three ideas are appealing, and for good reason. The grind is getting cheaper. People do decide whether any of this works. Fluency is where every firm has to start. What I would query is the ceiling the third one puts on the machine, and what all three leave out.
They stop at step one.
WHY THE LINE PERSISTS
One reason is straightforward, and it is the least cynical of them. Most people in this industry have never seen AI think with them. They have been told for three years that AI needs their data and that they supply the judgement, so they have tried extraction, summarising and first-draft reports, and rather fewer have sat down and asked a model to take their own position apart. Having never seen that, they conclude the division of labour was right all along. I’ll come back to this properly next week, because it deserves its own piece.
The other four reasons are less innocent.
The first is identity. This is an industry built on surveying, valuation and relationships, and judgement is what its professionals believe they are. Telling a room of chartered surveyors that judgement is the future amounts to telling them that they are the future. People rarely argue with that.
The second is incentive. Everything beyond step one asks the expert to make their own scarcity less scarce: to write down how they decide, precisely enough that the firm, and eventually a system, can do it without them. In a business built on billable effort and personal client relationships, that asks individuals to weaken their own bargaining position. You can’t argue people out of an incentive.
The third is what can be said on a stage. No senior figure from a large firm is going to tell a conference that their workflows need tearing up, or that a slice of their headcount exists to process information. ‘Judgement matters’ is as far as anyone can go in public, whatever they believe in private. I’ve sat on enough panels to know the pull.
The fourth is that the line is true but incomplete, which makes it awkward to challenge. Push back and you sound as if you’re dismissing expertise. And for anyone selling software into the industry, ‘AI takes the grind and leaves you the judgement’ is a very convenient message to put in front of buyers.
So the line gets repeated, and the industry stays on the first rung.
THE LADDER
Think about a restaurant kitchen. Giving the cooks better knives makes them quicker. Redesigning the menu and the kitchen around what the new equipment can do changes the economics of the place. Writing the recipes down, precisely enough that the food survives the head chef leaving, is what turns a good restaurant into a group.
CRE’s version has three rungs, and each is harder to copy than the one below it.
Fluency. Your people use the tools well, and that includes using them to think: interrogating the reasoning in a planning report, finding the objection a presentation invites, arguing the other side of a deal before the other side does. Most of the industry is still some way from this, and it is worth more than it gets credit for. It is also buyable: a competitor can hire or train its way to parity within a year. Every quotation in my opening lives here.
Redesign. The work itself changes shape. Tasks move, teams reform, and the process gets rebuilt around what AI can now do.
Encoding. The firm’s judgement becomes something it owns and runs, which survives people leaving and compounds with use. Regular readers will recognise this as the capability spine from ‘The Company After the Pyramid‘. The ladder is the way up to it.
Rung one makes individuals better at their jobs and leaves the organisation exactly as it found it. Redesign changes how the firm works. Encoding is how the firm keeps what it learns.
The best CRE example of rung two I know is AvalonBay. It mapped more than 100 tasks its onsite associates carry out and rethought how and where each one gets done: AI handles first contact, centralised teams sit behind it, and neighbourhood teams work on the ground. The company says the programme is on track for $55m of annual incremental NOI by the end of this year, against a longer-term target of $80m.
Two caveats keep this honest. Much of the model is centralisation that predates large language models (AvalonBay opened a back-office service centre in Virginia Beach in 2007), and the company doesn’t break out how much of the NOI is down to AI. Even so, this is redesign with numbers reported to investors, which is rarer than it should be.
The rung where value leaks
AvalonBay’s story has a sting in the tail. It was EliseAI’s early design partner; the founders moved to Arlington to sit with its teams and watch the work. AvalonBay invested, deployed the product across its portfolio, and together with Equity Residential now runs AI across 90% of prospect workflows, around 2.5 million customer interactions a year. On the call announcing their $69bn merger, Equity Residential’s chief executive reportedly said the platform will be sold to the wider industry and the combined company won’t own it outright. EliseAI says one in six US apartments now uses its software.
The knowledge AvalonBay helped encode has become the industry’s baseline. What AvalonBay keeps is the scale to pay for redesign, which goes a long way to explaining the merger. I made the wider argument in ‘The Toll and the Amputation‘: if your judgement gets encoded inside someone else’s product, you have helped build your competitors’ business.
WHY STEP ONE IS NO LONGER ENOUGH
Staying on the first rung was a reasonable choice while nobody was forcing the pace. Three things this summer suggest the pace is now being forced.
Capital. Prologis has agreed a £14bn takeover of SEGRO, pitched largely on SEGRO’s data centre pipeline, even though data centres currently produce around 7% of SEGRO’s net rental income (it expects more than 30% by 2035). Meanwhile OpenAI and Anthropic have each set up deployment businesses with private equity money: OpenAI with TPG, Brookfield, Advent and Bain; Anthropic with Blackstone, Hellman & Friedman and Goldman Sachs. Their purpose is to put engineers inside companies to redesign workflows around AI. Blackstone’s Jon Gray called the shortage of engineers who can implement these systems at speed one of the biggest bottlenecks to adoption. Two of the world’s largest real estate investors are backing firms whose whole job is rung two.
Clients. At the start of September the Financial Times reported that Goldman Sachs, Morgan Stanley and Citi are pressing their law firms to pass on AI savings. Goldman has asked firms what AI is saving them. Citi now asks firms bidding for its work to disclose the figure. Morgan Stanley plans to put most of its outside legal work out to competitive bid by the end of the year, with fixed fees on the table, and its general counsel called the associate-heavy model ‘extraordinarily unstable’.
Morgan Stanley also said it will still pay serious money for judgement. The panellists are right about that. What the bank is refusing to keep funding is the pyramid of junior hours underneath the judgement, and that pyramid is what law firm economics rest on.
CRE has its own pyramids: valuation teams, due diligence, lease administration, research, the management layer of outsourced FM. Which leads to the test I would put in front of any CRE business this autumn.
How are you paid?
A broker on commission keeps any productivity gain: if AI lets them do more deals, the fee per deal stays the same. Work whose price is anchored to effort has no such protection. Once the client knows the effort has shrunk, the price follows. The banks have just shown exactly how that conversation starts.
Talent. The person who can take a firm to rung two combines real CRE domain knowledge with real technical skill, and the labs are hiring that profile as fast as they can find it. Most CRE firms will rent one from a deployment business, and that engineer will encode your judgement inside a system you don’t own. The alternative is to grow your own, which starts with the people already on your payroll who have got good at rung one.
SO, WHICH RUNG?
It is my belief that the judgement line will be heard for a while yet, because it is the only version of the argument that is comfortable to say out loud. It survives partly because we keep telling real estate professionals that AI needs their data, and spend almost no time showing them what it can do with their questions. More on that next week.
One prediction to hold me to: within two years, a major UK institutional client will require its valuers or agents to disclose AI savings in fee tenders. Morgan Stanley has already written the letter. Someone in CRE will copy it.
Judgement will still be paid for when that happens. The question is whether your firm has built anything above it.
Rung one keeps you in the game. Rung two changes your margins. Rung three decides who owns the answer.
Which rung are you on, and who is climbing the next one for you?