The CEOs of three of the world's biggest commercial real estate brokerages posted either increased earnings or increased revenue, some at record highs, over the past week. But they found themselves focusing at times on addressing concerns about any potential negative effects of artificial intelligence on their businesses.
Marcus & Millichap's Hessam Nadji, Colliers' Jay Hennick and CBRE's Bob Sulentic joined some industry analysts in saying the centerpiece of their businesses are the relationships their staffs build with clients — and their ability to get a sense for how to price and position property to appeal to current market concerns. And, they said, that's not something AI can replace.
They made their comments in the wake of investor anxiety that AI could automate the industry's research, dealmaking, valuation and analysis, leading the shares of some real estate firms to fall sharply on Wednesday and Thursday before rebounding on Friday. Similar concerns have rolled across other industries and contributed to stock market volatility, hitting firms in technology, financial services and other sectors.
The CEOs pushed back against the concern that the use of AI could upend commercial real estate by reducing head count — and the need for property — across corporate America at some point as well as replace some services that property brokers provide.
"Our clients want certain things that we enable our brokers to bring to the table," such as "the ability to provide strategic input to big complex transactions," Sulentic, head of the world's largest commercial real estate services firm, said on CBRE's earnings call. "We're not selling $2 million condos. These are big, complex transactions that we're doing."
The assessments and results from the three firms come as industry dealmaking is returning after a real estate downturn. The evidence includes an improving U.S. office leasing market and lending on commercial property surging by 30% in the fourth quarter as a recovery takes hold.
The three CEOs said that recovery will accelerate this year, and for Dallas-based CBRE, it's already meant record revenue for the fourth quarter and full year, with annual revenue rising 13% to a record $40.6 billion. Sulentic said CBRE's transactional and investment work is the most protected from AI disruption, with dealmakers cultivating relationships over several decades with monthslong and yearslong deals relying on creative and strategic thinking and negotiating skills that AI would be hard pressed to replace.
As for Colliers, "we see AI as a productivity and growth enabler," Hennick told investors. "It is helping us automate routine work, improve efficiency and expand margins, allowing our professionals to focus on higher-value advisory services that are complex and rely on judgment, expertise and trusted relationships."
Nadji said the stock market response to recent comments about AI’s effects have has been "overly cautious and overly done." He added that AI replacing human experience and skills in real estate services "is almost an impossible scenario."
Areas for AI benefits
Some industry analysts agree there's a limited AI threat on the leasing and capital markets business. Raymond James analysts, in a report Thursday, said CBRE's business is "highly unlikely" to be disrupted by AI even as there could be some "conceivable long-term risk to office leasing demand" if the use of AI in businesses displaces white-collar workers.
Some analysts point out that property management and other physical jobs aren't likely to be replaced by AI. Jade Rahmani, an analyst with Keefe, Bruyette & Woods who tracks the publicly traded commercial property services firms, said investors across industries are scrutinizing high-fee, labor-intensive business models that could be vulnerable to AI-driven disruption.
Technology disruptions are not new to the industry, and the recent stock dip "may overstate the immediate risk to complex deal-making, even as the long-term AI impact remains a wait-and-see," Rahmani said in a note to clients.
Some executives say AI might disrupt more white-collar jobs than the COVID-19 pandemic. Matt Shumer, co-founder and CEO of OthersideAI, an AI company that has an inherent bias toward the impact of the technology, posted on X that AI's looming impact should not be ignored and that "something big is happening."
The AI effects hitting the tech industry is a preview of the disruptions to come for other industries, Shumer said. He pointed out that he is no longer needed for the technical work of his job; he can tell AI what he wants and when he returns hours later, the work is done. And much of commercial real estate industry is tied to information, and helping with investment and leasing decisions could lead to investors' initial concerns, according to some analysts.
To this point, Nadji said in an interview on CNBC, "the services part of commercial real estate is very different than the asset ownership, and it has so many different layers. AI will have a direct impact on many of those layers — but not the human component of experience, skill, relationships, negotiation and positioning assets for sale or lease."
The initial phase of the AI rollout is bringing efficiency gains and cost reductions from underwriting processes, analytics and data organization parsing, Nadji told investors during the firm's quarterly earnings call on Friday.
"That is happening as we speak," Nadji said. "There are almost countless ways that AI is going to improve the manual processes that are so labor intensive in our business."
Nadji acknowledged that some low- to midlevel skilled workers will be replaced by AI. But unlike recent comments by billionaire Elon Musk suggesting that skyscrapers full of computers will replace buildings full of people, "I don't think that's going to create another pandemic-like vacuuming of daily workers from office buildings," Nadji said.
Robert Shibuya, CEO of Dallas-based Mohr Partners, agreed with Nadji and a number of analysts, saying the market "overreacted" to the AI trade scare. The stock decline hit many real estate-related businesses, including CoStar Group.
"Humans still need to provide the customer experience for clients, like touring properties and negotiating transactions," Shibuya said. "These AI efficiency gains should lower costs to clients — for example, abstracting a 40-page lease now takes a broker minutes instead of hours — but that probably won't materially affect the brokerages' revenue."