AI Impact On Real Estate: Automation, Hybrid Work Cutting Office Demand?

For two decades, the hiring engine of the IT and outsourcing industry quietly powered office leasing in Bengaluru, Hyderabad and Pune. Every new batch of engineers meant more desks, more rentals, more homebuyers.

That link is now weakening. The AI tools that write code, fix bugs and automate routine work are slowing hiring at large software exporters. In the past 36 months, the top five IT firms have shed a net 85,000 employees. Besides, revenue growth has stayed below 3 per cent for 10 straight quarters.

As the IT job engine is sputtering, real estate is feeling the tremors.

Investors who bought apartments to rent to tech workers are struggling to find tenants. Office absorption from traditional IT occupiers has turned cautious. Banks are even rethinking how they lend to borrowers, who are exposed to automation risk.

How AI Is Entering Real Estate

A 2025 study cited in the PricewaterhouseCoopers (PwC) report shows entry-level employment in AI-exposed occupations has fallen 13 per cent, while experienced roles are stable. That matters because entry-level hiring is what fills office seats.

One quote from the study stands out: "AI is a solid replacement for a junior analyst." That is where the office impact begins.

However, the PwC study also maintains that job replacement is still rare in real estate firms. Job transformation is far more common in the sector as AI is being used for:

• Leasing recommendations
• Underwriting and price modelling
• Chatbots for residents
• Demand forecasting
• Administrative automation

Why Fewer Entry Jobs Matter To Real Estate

Fresh graduates and junior analysts are the biggest users of office desks. They work from office more often. They fill large campuses. When those roles shrink, the need for large, dense office floors also reduces.

At the same time, hybrid work is now mainstream. Over 73 per cent of Indian firms are running hybrid models. Nearly 75 per cent employees prefer flexibility.

Shiv Garg, Director at Forteasia Realty, says this is not reducing demand but redefining it. He points to desk-sharing, collaborative layouts and the rise of flexible offices. India already has over 79.7 million sq ft of flexible office space, expected to cross 100 million sq ft by 2026. The coworking segment is projected to grow over 14 per cent from $4.53 billion in 2026 to $8.7 billion by 2031.

In his words, this is "not a slowdown, but a restructuring of demand."

Tier-2 Cities Enter The Office Map

AI-led distributed teams are also changing where offices are taken. Vijay Raundal, Managing Director at Teerth Realties, says companies are looking at cities where rentals and operating costs are 30-50 per cent lower than Tier-1 hubs.

Cities like Indore, Coimbatore, Jaipur and Lucknow are emerging as serious office markets. Digital infrastructure and remote collaboration tools make this possible.

He also flags another demand driver: data centres. Over the next five years, India may see 1.3 GW of new data centre demand, creating nearly $10 billion in new cash flows linked to AI, cloud and digital infrastructure.

That is real estate too. Just not the traditional office.

Grade A vs Outdated Buildings

Anurag Goel, Director at Goel Ganga Developments, calls the belief that AI will kill office demand "flawed". He points to a record 83.3 million sq ft of office leasing in 2025. Vacancy is around 16.1 per cent, still healthy by global standards.

But he admits AI is "polarising" demand. Old buildings without digital infrastructure, energy efficiency and smart systems will struggle. Grade A, AI-ready buildings will thrive.

He notes that 91 per cent of Indian companies are piloting AI in some form linked to office use. Tech-only occupations and GCC expansion have driven 34 per cent of leasing activity, offsetting some of the automation-led contraction.

In a similar vein, Mohit Nawany, CEO, Nawany Group, also said, "The AI economy does not need fewer offices. It needs better ones, and that is precisely the opportunity we are building for."

Offices Are Becoming Collaborative Hubs

Ashish Agarwal, CEO of Enzyme Office Spaces, says the idea that AI means fewer offices is oversimplified. AI-led businesses need more collaborative, flexible and innovation-driven spaces. Coworking models allow more intensive use of offices than traditional desk layouts.

Offices are moving from rows of desks to hubs for collaboration, brainstorming and engagement. In his view, AI will "maximise the potential" of office real estate, not reduce it.

How AI Is Changing Real Estate Operations:-

PwC's findings show how this shift is already visible inside buildings:

Young renters, the report notes, often prefer dealing with a good app over a person.

Banks Are Watching Closely

With tech salaries stagnating and job risks rising, banks are reassessing mortgage and credit exposure to IT professionals. Given the AI-driven changes, Canara Bank's economics team has proposed:

• Lower loan-to-value ratios (60% vs 80%) for automation-exposed borrowers
• Taking IP and proprietary data as collateral in corporate loans
• Creating debt-service reserves from AI-led cost savings

Essentially, AI is not emptying offices. It is deciding:

• Which cities get offices
• Which buildings get tenants
• What type of space is leased
• How many people actually sit there daily

While large IT campuses with thousands of junior engineers may shrink, demand for flexible offices, collaborative spaces, data centres, green Grade A buildings, and tier-2 city office spaces is rising.

So, while the old formula was "more hiring = more desks", the new one "smarter work = innovative desks".