AI Layoff Fears Fade as Office REITs Rebound 35% in Q2
N.R. Finch
U.S. office REITs surged 35% in Q2, reversing a 17% Q1 sell-off driven by fears that AI would wipe out white-collar jobs — strong New York leasing data proved the 'robots taking desks' threat has not materialized, at least not yet.
A 17% crash then a 35% rally — what happened?
In Q1, demos from AI firms like Anthropic spooked investors: lawyers, insurance brokers, and software engineers could be replaced en masse → empty offices → office REITs — listed funds that own office buildings and collect rent — plunged 17%.
The narrative flipped in Q2. SL Green, Vornado, and other core New York office REITs reported strong Q1 leasing numbers, sending shares up 35%.
This means → the market priced in the worst case first; when the data came in, panic turned out to be ahead of reality, and a sharp correction followed.
What did the leasing data actually show?
Evercore ISI analyst Steve Sakwa told *Barron's*: these stocks were severely oversold, then they posted very strong leasing figures — and the momentum has continued.
Office landlords broadly report no material impact from AI on leasing demand. Occupancy in core markets like Midtown Manhattan is climbing.
SL Green and Vornado both show rising profits and cash flow this year. In plain terms = the buildings are still filling up, and the rent checks are still clearing.
Short interest is still sky-high — who's still betting on a decline?
Despite the 35% rebound, office REITs carry the highest short interest of any real-estate sub-sector — roughly 8% of the free float is sold short.
This means → the market remains deeply divided on whether AI will ultimately erode white-collar employment; the bears have not capitulated.
Sakwa himself concedes: "I wouldn't say we're completely out of the woods," but the leasing environment over the past three to six months has clearly improved.
Which names does the analyst favor — and why?
SL Green and Vornado — premium New York office landlords gaining share from private owners. Both carry Sakwa's buy rating.
Kilroy Realty — focused on the U.S. West Coast. San Francisco's CBD is attracting AI winners like Anthropic and OpenAI to aggressively expand their leased footprint, feeding new demand to Kilroy. This reflects a striking paradox: AI threatens office REITs, yet AI companies themselves need offices.
COPT Defense Properties — tenants are in defense and intelligence; employees cannot work from home. Occupancy tops 95%. Put simply = no matter how AI evolves, people handling classified work must show up in person — that is the hardest lease guarantee there is.
Has the core question been resolved?
Whether AI will ultimately displace large numbers of white-collar workers remains an open question.
The current data prove only one thing: that disruption has not arrived yet.
This means → the office-REIT story is far from over — each quarter's leasing data will serve as the market's key validation checkpoint for repricing.
Content is for reference only, not financial advice.