Artificial Intelligence (AI) Expected to Support Economic Expansion and Boost Demand for Commercial Real Estate Across EMEA

Artificial Intelligence (AI) is expected to support economic growth and drive demand for commercial real estate across Europe, the Middle East and Africa (EMEA), according to a new report by Cushman & Wakefield.

The report, “AI Impact on Commercial Real Estate: The Next 10 Years”, concludes that AI will have a net positive impact on economic growth and real estate demand over the next decade, although its effects will vary significantly by sector, location, and asset quality.

“There is a misconception that AI will reduce the need for physical space,” said Dominic Brown, Head of International Research, APAC & EMEA at Cushman & Wakefield. “Our analysis shows the opposite: AI expands economic activity, which ultimately generates greater demand for real estate across a range of sectors.”

Four Scenarios, a Wide Range of Outcomes

The study models four distinct scenarios reflecting different paths for AI adoption, productivity growth, and labour market developments:

• Base Case Scenario – Gradual Adoption (50% probability)

Moderate productivity gains support steady economic expansion. Real estate demand remains resilient, despite some temporary slowdowns in specific sectors, as AI gradually adds value over time.

• Productivity-Led Boom (15% probability)

Rapid AI adoption drives strong economic growth and job creation. Rising demand across multiple sectors supports higher rents and asset values.

• AI Disappointment – Mild Recession (25% probability)

AI adoption falls short of expectations, contributing to a cyclical economic slowdown. Demand weakens in the short term, increasing vacancy rates and putting pressure on rents before a later recovery.

• Dystopian/Substitution Scenario (5% probability)

AI proves more disruptive to human labour than anticipated, leading to higher unemployment levels. Demand remains weak for a prolonged period, negatively affecting rents and asset values.

In the base case, economic growth across the EMEA region is expected to recover from the subdued levels seen in recent years and reach an average of approximately 1.5% per year, with inflation stabilising at around 2%, supported by AI-driven productivity gains. These gains are expected to come mainly from enhancing existing job functions, with only a moderate impact on job displacement.

While real wages are expected to rise, productivity improvements should help offset cost pressures, keeping inflation close to target levels.

Although AI is likely to automate certain routine tasks, the study suggests that employment in the EMEA region will initially increase under the base case scenario, driven by the creation of new businesses and jobs. Employment growth is then expected to slow due to demographic constraints and sectoral restructuring.

The Impact of AI on Commercial Real Estate

From a commercial real estate perspective, AI is expected to have a positive impact on demand rather than reduce the need for physical space. Increased economic output and business formation are likely to translate into growing occupancy requirements over time. This expansion will be accompanied by structural changes in space utilisation and new investment strategies.

Under the base case scenario, core real estate returns are expected to stabilise at around 10%, supported by regional economic growth and evolving demand drivers.

• Office Market: Transformation, Not Disruption

Office markets across EMEA are expected to evolve rather than contract. AI-driven efficiency gains may reduce demand for some routine roles, but these effects are likely to be largely offset by the creation of new jobs, the establishment of new businesses, and broader economic expansion.

Demand is expected to become increasingly concentrated in high-quality buildings and strategic locations that facilitate collaboration, innovation, and technological integration.

• Logistics and Data Centres Lead AI-Driven Demand

The logistics and industrial sector is expected to be one of the primary beneficiaries of AI adoption, driven by automation, e-commerce growth, and the increasing complexity of supply chains.

In the base case scenario, net absorption of prime logistics space is projected to reach 110 million square metres by 2035.

Within this growth dynamic, data centres are emerging as critical infrastructure assets, with power availability becoming one of the key constraints influencing supply and investment decisions.

• A More Polarised Retail Market

Growing incomes are expected to support consumer spending, but the retail market is likely to become increasingly polarised.

Both premium and value-oriented retail segments are expected to outperform, while the mid-market segment may face structural challenges, reflecting greater segmentation in consumer behaviour and preferences.

Risks Remain

Although the overall outlook is positive, downside risks remain. These include lower-than-expected productivity gains and more significant labour market disruptions, which could result in higher vacancy rates and downward pressure on rents.

According to Ana Gomes, Partner and Head of Research & Insight at Cushman & Wakefield Portugal: “Against a backdrop of favourable prospects for the Portuguese real estate market, the range of possible outcomes remains significant. For investors and occupiers, understanding the different scenarios will be essential in making strategic decisions and positioning themselves to capture opportunities that may emerge over the next decade.”