Real Estate Stocks Plunge as AI-Driven Job Loss Concerns Intensify

Commercial real estate stocks nosedived on Thursday as traders worried about the risk to demand for office space due to the higher use of artificial intelligence (AI) tools. This selloff broadened from a small corner of the market that began on Wednesday.

Shares of CBRE Group, a major commercial real estate services company, fell 8.8%, bringing the two-day decline to 20%—the worst such move since 2020. Jones Lang LaSalle fell 7.6% on Thursday, Cushman & Wakefield dropped 12%, and Newmark Group slid 4.2%.

An index tracking stocks of office real estate companies retreated 4.2%. Major decliners in the index include SL Green Realty, Cousins Properties, Kilroy Realty, and BXP.

“Concerns about increased use of AI applications translating into reduced demand for office space have been around for some time, this is not new,” said Jeffrey Langbaum, an analyst covering office REITs for Bloomberg Intelligence. “However, after yesterday’s selloff in the brokers, we are seeing the fear spill back over to the actual office space providers.”

The two-day selloff across real estate stocks is among the latest in what analysts are calling the “AI scare trade.” This trend reflects the market's growing apprehension about AI's potential to disrupt various business models.

“We’re in a bit of a ‘ready fire aim’ environment in financial services in general, with investors reacting sharply to even modest earnings misses given widespread fears of AI disruption,” Morningstar’s Sean Dunlop said.

Investors’ concerns about AI disrupting business models have intensified following the rollout of new tools by startup Anthropic. This has led to steep selloffs in several corners of the stock market over the past couple of weeks—starting with software makers, then moving to private credit companies, insurers, wealth managers, real estate services, and logistics firms.

“The market is pricing in the potential for mass office-using job losses as a result of AI,” said Jefferies analyst Joe Dickstein. On the other hand, analysts and investors have warned that some of the recent steep selling reflects a knee-jerk reaction from traders and could be overestimating the risks.

Despite the current downturn, it's important to note that the long-term impact of AI on the real estate sector is still uncertain. While AI has the potential to streamline operations and reduce costs, it could also lead to new opportunities and business models. Companies in the real estate sector will need to adapt and innovate to navigate these changes effectively.