AI and Real Estate Investing: What Technology Can't Replace | AAA Storage

Every week brings a new AI tool and new questions about which industries will hold up. At a conference in Phoenix this year, sponsors across real estate and other asset classes agreed that raising capital has been difficult, and uncertainty about AI is part of the reason.

What can't AI replace, and what does that mean for real estate investors? We take this question on in the latest episode of The AAA Storage Podcast.

AI Already Runs Part of Our Business

In the late 1990s, before every facility had a website, we had no visibility into competitors' pricing. Today, AI agents crawl those websites and recommend how to price each unit, and the large REITs move their rates every hour.

It shows up in our back office too. Reconciling the bank accounts across our special purpose entities, fund entities, and operating entities used to take three or four people three or four days. It now runs in about 18 seconds. We still check every bit of it, but three or four man-days of work has become four to six man-hours.

The Right Question: How, Not Why

Tenants are the source of a property's revenue, so the question to ask is whether AI changes how a tenant's business operates without eliminating why it operates.

Office is the clearest exposure. Demand for office space is tied directly to headcount, and remote work has already shifted its value. If AI lets a tenant do the same business with half the people, it needs half the space. Malls and specialty retail have lost business to online sales, while grocery-anchored centers serve needs you have to meet in person. You can't get your nails done by an AI bot in your living room. AI may make a hotel easier to run, but a traveler still needs a place to sleep.

Self-Storage and Small-Bay Meet a Physical Need

Our small-bay tenant base is heavily weighted toward the trades. Until a robot comes to your house to fix your plumbing, the plumber needs a place to store tools and inventory. If AI helps a five-person HVAC company do the revenue of a ten-person company, it may need more space for inventory, not less.

Self-storage demand comes from life events such as moving, remodeling, divorce, or settling a parent's estate. It also comes from business customers storing inventory and materials, and from households with more than they can keep at home.

None of this removes the risks real estate has always carried. Oversupply, vacancy, and rate pressure are real and have to be managed. I just don't see AI adding a new one for these two property types.

Digital Growth Still Needs Physical Space

Data centers and chip plants are physical, and so are the vendors who serve them. Samsung built a large chip manufacturing plant outside Austin. Our Growth Fund 2 site in Hutto, Texas, sits about a mile and a half away on a major route to it. As we prepared to assign the project to the fund, we saw Samsung's vendors scrambling for space, so we changed the plan from a combination of self-storage and small-bay to all small-bay.

Invest for Optionality, Not Predictions

I don't try to predict the future. I look for investments that give me optionality.

Before you invest, ask:

• How specialized is the building?

• How many different users could occupy it?

• How expensive would it be to convert for another tenant?

• Does demand depend on one industry or one large employer?

A small-bay space can hold a contractor one year, a distributor the next, then a light manufacturer or a local service business. The upfit cost is modest and usually built into the lease.

Key Terms

• Physical economy: The part of the economy that depends on physical space, goods, and in-person services, as opposed to purely digital activity.

• Small-bay industrial: Smaller industrial and flex units, typically leased to trades, contractors, distributors, light manufacturers, and local service businesses.

• Grocery-anchored center: A shopping center whose main tenant is a grocery store, usually alongside services people visit in person.

• Optionality: An asset's ability to serve many different tenants or uses without costly conversion.

Frequently Asked Questions

Will AI reduce demand for commercial real estate?

It depends on what drives demand. Property types tied to headcount, such as office, are more exposed if AI reduces employment. Property types tied to physical need, such as self-storage and small-bay industrial, depend less on headcount.

Why is office more exposed to AI than self-storage?

Office demand rises and falls with the number of employees. Self-storage demand comes from life events, business inventory, and household goods, none of which depend on a company's headcount.

How do I evaluate whether a property can adapt to change?

Ask how specialized the building is, how many users could occupy it, what it would cost to convert, and whether demand depends on one industry or employer.

Ready to talk about your investment strategy? Reach out at aaastorageinvestments.com/contact