US Market Sell-Off: Real estate stocks tumble as AI disruption fears grow

US-listed real estate stocks came under sharp pressure for a second straight session, as investor concerns around artificial intelligence-driven disruption spread to the commercial property space.

Shares of commercial real estate brokers led the decline as the sector became the next AI victim. CBRE closed nearly 9% lower on Thursday, February 12, after falling to an intraday low of more than 12%. Jones Lang LaSalle fell 7.6%, while Hudson Pacific Properties lost close to 4%. Newmark and BXP slid over 4%, while SL Green Realty slipped about 5%.

Jade Rahmani, analyst at Keefe, Bruyette & Woods, in a note cited by CNBC, wrote,  “We believe investors are rotating out of high-fee, labour-intensive business models viewed as potentially vulnerable to AI-driven disruption.”

Real estate stocks are the latest sector to come under pressure following earlier sell-offs in software and financial services tied to AI fears. Trucking and logistics shares also slid sharply on Thursday after the launch of an AI-powered freight scaling tool. C.H. Robinson Worldwide plunged 20%, RXO fell 25%, and J.B. Hunt Transport Services declined more than 6%.

Investors now cautiously look out for the next sector to become a casualty of the AI trainwreck, while also keeping an eye on how long any panic selling lasts.

AI's impact on employment

Commercial real estate has already been under strain due to higher interest rates and the structural shift towards remote and hybrid work since the pandemic, which has dampened demand for office space. Investors now fear that AI could further undermine employment and office usage.

Those concerns gained traction after a widely shared essay by Matt Shumer, co-founder and chief executive of OtherSide AI, who argued that AI could sharply reduce entry-level white-collar jobs. He wrote that the impact will be larger than Covid. Shumer claimed that the essay garnered 30 million views in 24 hours.

Separately, Elon Musk said on a podcast that office towers once filled with workers could eventually be replaced by AI.

On the “Dwarkesh Podcast” last week, Musk said, “Corporations that are purely AI and robotics will vastly outperform any corporations that have people in the loop. Computer used to be a job that humans had. You would go and get a job as a computer where you would do calculations. They’d have entire skyscrapers full of humans, 20-30 floors of humans, just doing calculations. Now, that entire skyscraper of humans doing calculations can be replaced by a laptop with a spreadsheet.”

Musk added, “That spreadsheet can do vastly more calculations than an entire building full of human computers."

The sell-off in real estate follows earlier declines in other sectors hit by AI disruption fears. Software stocks fell earlier this year after Anthropic unveiled a model that appeared to automate legal and coding work, while wealth management stocks slid after Altruist launched an AI-powered tax planning tool that promises results “within minutes.”

Are the AI fears overstated?

Despite the sharp sell-off, some analysts caution that the market reaction may be overdone. Rahmani noted that real estate fundamentals remain relatively solid and, “While the threat of technology disintermediation is not new to the industry, the current sell-off may overstate the immediate risk to complex deal-making,” according to CNBC reports.

CBRE, for instance, reported a fourth-quarter earnings beat on Wednesday and issued a strong outlook for the year ahead. Core earnings came in at $2.73 per share, above the $2.68 estimate, according to FactSet. The company forecast full-year core EPS of $7.30 to $7.60, compared with the Street’s expectation of $7.39.

CBRE chief executive Bob Sulentic pushed back against the notion that AI poses a threat to the firm’s core businesses. “We’ve become quite confident that that business really is driven by this strategic creative thinking that our brokers do,” Sulentic said on the company’s earnings call.

The company believes that the momentum will continue, he said, adding,  “We haven’t seen any evidence to the contrary.”

Similarly, Barclays analyst Brendan Lynch said he would buy the dip, calling the sell-off inconsistent with earnings profiles. “We do not dismiss this risk, but note that thus far AI has been a net job creator,” he wrote, adding that real estate service providers could benefit from productivity gains and cost efficiencies.

Nevertheless, longer-term risks remain for firms slow to integrate AI into their operating models. Macquarie strategist Thierry Wizman warned that companies relying heavily on costly human-led processes could face structural challenges if AI-driven, end-to-end workflows become the norm.

As per CNBC, Wizman said, “For companies that are slow to adopt, or have built customer models based on costly human-level discretion and interaction, that transition may be fatal.”