Commercial property must plan for the productivity shock

AI changes hiring, utilisation, and space planning, forcing landlords and tenants to rethink leases.

Article link: https://open.substack.com/pub/johanosteyn/p/commercial-property-must-plan-for?r=73gqa&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true

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A strange thing is happening in markets: fears about AI are no longer landing only on tech stocks. They are starting to show up in sectors like commercial property, where investors are asking an uncomfortable question: if AI helps white-collar teams do more with fewer people, what happens to office demand? Moneyweb recently reported on listed real estate names sliding as these worries spread. The temptation is to reduce this to another market narrative. But for business leaders, landlords, and investors, it points to a real operational shift: AI-driven productivity changes how many people you hire, how your teams work, and what kind of space you actually need.

CONTEXT AND BACKGROUND

The market’s anxiety is being described as an “AI scare trade”, where investors sell first and think later, expanding fear beyond software into real estate and other service-heavy industries. Reuters captured how the sell-off has broadened across sectors as people try to price in disruption before it is visible in earnings.

At the same time, the evidence base is still forming. Some analysts argue that the story is more complex than “AI kills jobs, therefore offices empty”. The Guardian recently noted that while AI is clearly coming, there is still limited hard evidence of immediate economy-wide upheaval, even if the pressure on margins and certain tasks is real.

Then there is a third reality, which property people understand well: office demand is not a single number. It is the result of location, quality, commute patterns, and what firms want their offices to do. Reuters Breakingviews recently argued that prime office space can remain resilient because of a shortage of the right buildings in the right places, even with AI hanging over the sector.

INSIGHT AND ANALYSIS

The “productivity shock” is less about a sudden collapse in office work and more about a gradual shift in how work is organised. If AI tools reduce the time required for drafting, analysis, coding, and reporting, leaders can deliver the same output with fewer people, or with the same people producing more. Both scenarios change space needs, but not in the simple way markets often assume.

Here is the more plausible pattern: fewer fixed desks per headcount, more flexible layouts, and more emphasis on collaboration, training, and culture-building moments that benefit from being together. In other words, the office becomes less of a daily production line and more of an intentional hub. That will favour higher-quality buildings and locations that support purposeful gatherings, and it will punish space that exists only because “everyone needs a desk”.

This is also why leases and utilisation models will have to adapt. Long, rigid commitments made sense when the workforce size was relatively predictable. AI introduces uncertainty. Hiring may become more cautious. Teams may remain stable in size but shift to hybrid patterns. And task automation may reduce the need for large back-office teams. The result is a push towards flexibility: shorter lease terms, expansion and contraction clauses, and more service-led offerings from landlords.

Finally, leaders should notice the second-order risk: if AI compresses margins in professional services, finance, and software, it can affect tenants’ profitability and their ability to pay premium rents. The Financial Times has argued that AI productivity is becoming visible and investable, which is another way of saying it is starting to move from theory into operational planning and budget lines.

IMPLICATIONS

For corporate leaders, this is a prompt to rethink property as part of your AI strategy. Don’t wait for a lease break date to have the conversation. Ask: which roles are likely to become more AI-augmented, how will that affect headcount plans, and what rhythms of in-person work genuinely improve performance? Use those answers to design a footprint that matches outcomes, not tradition.

For landlords and property investors, the priority is to differentiate. “Office space” is splitting into categories: prime, well-located, experience-rich buildings versus commoditised space that competes mainly on price. Investment in flexibility, amenities, and technology-enabled occupancy management will matter more than ever. So will tenant mix and concentration risk in industries most exposed to AI-driven margin compression.

For policymakers and city planners, the risk is unevenness. If demand softens in some nodes and strengthens in others, the consequences will show up in transport patterns, small business ecosystems, and municipal revenue. Planning needs to anticipate shifts in utilisation, not just total square metres.

CLOSING TAKEAWAY

AI will not “delete the office” overnight, but it will change why offices exist and how much space firms are willing to fund. That is the productivity shock: not a dramatic collapse, but a steady redesign of work, hiring, and utilisation that makes old property assumptions less reliable. The winners will be the leaders who separate noise from signal, plan for flexibility, and treat office space as a strategic tool for collaboration and culture, rather than a default cost of employing people. In an AI-shaped economy, the office must earn its place.

Author Bio: Johan Steyn is a prominent AI thought leader, speaker, and author with a deep understanding of artificial intelligence’s impact on business and society. He is passionate about ethical AI development and its role in shaping a better future. Find out more about Johan’s work at https://www.aiforbusiness.net