Real estate stocks have become the latest victim of the artificial intelligence threat. Commercial real estate brokers are selling for the second day in a row. CBRE closed nearly 9% lower on Thursday after falling more than 12% in early trading. Jones Lang LaSalle fell 7.6% and Hudson Pacific Properties fell nearly 4%. Additionally, Newmark and BXP both fell more than 4%, and SL Green Realty fell about 5%. “We believe investors are moving away from high-fee, labor-intensive business models that are seen as potentially vulnerable to disruption by AI,” Jade Rahmani, an analyst at Keefe, Bruyette & Woods, said in a note Wednesday. CBRE YTD Mountain CBRE This year-to-date decline reflects the market’s recent somber mood, with a sharp shift away from the companies most exposed to AI disruption, first software and then financial companies, to more defensive sectors such as consumer staples. Trucking and logistics stocks also fell on Thursday due to the release of an AI freight scaling tool. Shares of CH Robinson Worldwide and RXO plunged 20% and 25%, respectively. JB Hunt Transport Services’ stock price fell more than 6%. Investors are now watching to see which sector will fall next as a domino and how long the panic selling will last. AI Destroying Jobs Commercial real estate has been under pressure for some time, with rising interest rates and an increase in remote and hybrid work post-pandemic causing a surge in demand for office space. Investors are concerned that AI could sound the death knell for the sector. This point was brought home once again in an essay that went viral on the internet earlier this week. Matt Schumer, co-founder and CEO of OtherSide AI, said that entry-level white-collar jobs will be lost to AI. The impact will be greater than the coronavirus, he wrote. Schumer said the essay received 30 million views in 24 hours. These remarks follow comments from Elon Musk on a podcast last week, in which he said office towers once filled with employees will one day be replaced by AI. “Companies that deal purely with AI and robotics are going to perform much better than companies that have humans involved. Computers used to be jobs for humans. They’re going to take the jobs of computers doing the calculations. Super. “You would have an entire skyscraper filled with people, up to the 20th or 30th floor, just doing the calculations. Now, the entire skyscraper with humans doing the calculations will be replaced by laptops with spreadsheets,” Musk told organizers. Last week’s “Dwarkesh Podcast”. “That spreadsheet can do a lot more calculations than a whole building of human computers,” Musk added. SLG YTD Mountain SL Green, Year to Date The selloff in real estate stocks comes on the heels of declines in several other sectors due to concerns about AI disruption. Software stocks took a hit earlier this year as Anthropic’s latest AI mode appeared to allow companies to pursue legal procedures and build programs that otherwise would have required paying expensive licenses. Wealth management stocks then plunged following the announcement of a new AI-powered tax planning tool from technology platform Altruist that promises to get the job done “within minutes.” Is your fear exaggerated? Still, many investors are betting that recent concerns may be overblown. Indeed, despite all the noise, real estate fundamentals remain strong, Rahmani noted. “While the threat of technology disintermediation is not new to the industry, the current decline may overestimate the immediate risk to complex dealmaking, even though the long-term impact on AI remains a ‘wait and see’ issue,” he said. In fact, CBRE reported a fourth-quarter profit beat on Wednesday and also issued a strong outlook for the year. Core earnings came to $2.73 per share, beating consensus estimates of $2.68 per share, according to FactSet. The company expects core EPS to be between $7.30 and $7.60, compared to analyst estimates of $7.39. CBRE CEO Bob Salentic pushed back against the notion that the company’s core business would be disrupted by AI, saying the company has built cost-effective AI tools to support rather than disrupt brokers’ operations. He added that many of the transactions CBRE oversees are complex and require the firm’s deep knowledge and extensive relationships in the field. “We have become convinced that the business is truly driven by the kind of strategic and creative thinking of our brokers,” Salentic said on the company’s earnings call. “And we think that’s going to continue, but we haven’t seen any evidence to the contrary yet.” Barclays analyst Brendan Lynch maintains an overweight rating on CBRE and Newmark, and would buy the weakness. “We view the sharp decline in share prices within the group to be inconsistent with the earnings profile,” he said in a note on Wednesday. “While we do not deny this risk, we note that so far AI has been an online job creator,” he wrote. “Furthermore, CRE servicers, like many other companies, can benefit from both revenue growth opportunities and cost synergies.” However, Macquarie strategist Thierry Wismann said in a note on Thursday that there could be long-term implications for companies that do not move from using AI as another tool in their toolbox to making their operational infrastructure core to new business models. For example, for financial services and real estate companies, results-oriented AI agents will perform all end-to-end workflows, replacing human-driven workflows, he said. “For companies that are slow to adopt, or whose customer models are based on costly human-level discretion and interaction, that shift could be fatal,” he said.
