Assessing Real Estate’s AI Future

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This story features WISETECH GLOBAL LIMITED, and other companies.
For more info SHARE ANALYSIS: WTC
The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

AI impacts on real estate assets are expected to be multi-functional, both positive efficiency/growth as well as disruptive depending on end user demand.

• AI impacts on the labour market viewed as being an "augmenting technology"
• Office property is generally identified as the most at risk of work force impacts
• AI's effects are both positive and potentially negative for office and other REIT sectors

By Danielle Ecuyer

Challenging the negative narrative around AI disruption on labour markets

The focus on potential AI disruption and obsolescence impacts versus efficiency and growth opportunities has not yet been displaced by global economic uncertainty emanating from war in the Middle East.

The most recent spotlight has been cast on the impact of AI on real estate as well as the labour force. Both are inextricably linked, with AI having the potential to both downsize and in some instances upsize work forces, thereby impacting on demand for property.

From a top-down macro analysis, Morgan Stanley identifies, as a base case outcome, GenAI as a net labour “augmenting technology”, leading to improved productivity and real wages, albeit also disruptive in nature.

The broker has developed a dashboard to track and assess labour market dynamics across several input sources, both traditional, such as surveys, as well as AI exposure measures applying big data from the in-house thematic team.

GenAI’s impacts are the latest in a series of technological disruptions in labour markets, specifically the US. Historically, disruption could evolve over multiple decades.

The most recent disruption prior to AI, the internet, saw a faster adoption and impact on the labour force, underpinning productivity gains over what proved a relatively brief period only.

The AI phase is anticipated to be faster yet again. On balance, at this stage, the disruption appears “modest”, which may in part reflect the early stage of AI adoption.

Analysis suggests that, when adjusting for relative sector economic cycles, around 10bp, at most, has been added to the overall unemployment rate to date.

Data for the younger cohort of workers, aged 22-27 years, suggest greater possible impacts and might be considered the “canary in the coal mine”. One explanation, as proffered by the broker, is this segment has higher exposure to routine, automatable tasks within occupations.

While the macro focus suggests it is harder to identify AI-related displacement in employment data to date, Morgan Stanley explains “soft” evidence, including company announcements and earnings call transcripts, reflects a higher percentage of companies discussing AI specifically in the context of labour.

Tracking shows “displacement” mentions rising more swiftly than “job creation”.

Given markets reward management via higher stock prices around cost-cutting measures, the analysis points to possible incentives for companies to couch efficiency measures as AI-driven. Thus, transcript conclusions should be viewed as “directional” rather than definitive proof of job losses.

In a separate AI-related update, Morgan Stanley emphasises AI, like previous “general purpose technologies”, is expected to lift output per worker, notably with organisational change.

Equally, previous fears of mass technological unemployment failed to materialise, but both education and re-skilling will be critical factors.

Although not the focus of this article, probable “boom-bust” cycles are highlighted as likely, with AI infrastructure investment seen mirroring, at least in part, prior railroad and telecom build-outs, with “financial excess and volatility” viewed as likely scenarios.

Commercial property: adapt or decline

Citi and Jarden assess AI impacts on real estate via a two-pronged approach, productivity and efficiency gains versus disruption and obsolescence across sectors.

At the Citi 2026 Global Property CEO conference, AI impacts highlighted varied across real estate sectors.

Across Australian and international management discussions, the key takeaway was that office impacts, in terms of labour force reductions, are more likely in regional areas where administrative roles are concentrated.

Prime office property that is well located and offers high-quality services, particularly with greater human customer interface, is viewed as less exposed to AI disruption.

As noted by Citi, impacts to date have been limited but are expected to increase over the medium term.

Jarden also notes Australian office markets, following a post-covid stabilisation period, are back in focus as AI impacts on white-collar employment are assessed.

The analysis, like Morgan Stanley’s, points to anecdotal evidence of recent cost-cutting measures citing AI, including Atlassian (around -10% of the workforce), Block ((XYZ)) at circa -40% and WiseTech Global’s ((WTC)) announced shrinking of the workforce.

Macquarie’s latest REIT sector update equally highlights the value of office property as at risk of further de-rating, with growing concerns over AI impacts on employees and thus office demand.

Consulting group CreditorWatch confirms the ongoing challenges for commercial property, and details how the Australian macro environment, even prior to the start of the Middle East turmoil, had experienced a record 14,649 businesses becoming insolvent and B2B invoice payment defaults hitting new highs.

Construction and hospitality sectors are reporting elevated insolvency rates, with flow-on challenges to commercial property stakeholders exposed to those segments.

The consultant notes commercial property sectors are experiencing varied performance, with office markets facing headwinds from elevated vacancy rates, which remain high, with ongoing hybrid work trends not assisting.

Sydney CBD retained a 13.8% vacancy rate as at January this year, with Melbourne the highest national rate at 19%, while Brisbane is more robust at 11.8%. Canberra is the tightest at 10.2%.

The industrial sector continues to reflect the strongest performance, boosted by e-commerce growth and lower investment over the covid period. Due to limitations around urban growth options, existing assets need to be updated with AI-ready specifications.

Assets with such characteristics are generating premium rents.

The relationship and impact with AI is multi-level. On one hand, the consultant notes automation can lift efficiency and possibly reduce the space required, while ongoing growth in supply chains and e-commerce expansion is underpinning higher demand.

Sub-sectors such as cold storage facilities, last-mile logistics and data centres are identified as growth sectors for investment and leasing opportunities.

Translating property impacts to the REIT sector

Breaking down REIT office exposures, Jarden notes Dexus ((DXS)) at 53% has the highest core exposure on the ASX, followed by GPT Group ((GPT)) at 31%, and Mirvac Group ((MGR)) at 20%.

GPT has the highest exposure to premium grade assets at 68%, followed by Dexus at 60%, and Mirvac at 59%.

FNArena’s daily monitored brokers have a consensus target price on Dexus of $7.12, with Jarden at $7.55 alongside an Underweight rating.

GPT has a concensus target $5.25 with six Buy-equivalent ratings. Jarden is Neutral rated with a $5.90 target.

Mirvac has a consensus target of $2.248, carrying three Buy-equivalent and two Hold-equivalent ratings.  Jarden is Buy rated with a $2.52 target.

In contrast, Growthpoint Properties ((GOZ)) has the highest exposure to metro and suburban office markets at 91%, followed by Centuria Office REIT ((COF)) at 67%, and Stockland ((SGP)) at 66%, suggesting higher exposure to AI disruption risk.

Growthpoint is not covered by Jarden while daily monitored brokers have a consensus target of $2.373, with two Buy-equivalent ratings and one Hold.

Centuria Office has a consensus target of $1.028 with three Hold and one Sell-equivalent rating. Jarden is Underweight rated with a $1.10 target.

Stockland has a consensus target of $5.534 with three Buy-equivalent ratings and two Hold-ratings. Jarden is Overweight rated with a $6.40 target.

Sectors and locations likely more at risk

Applying AI to sector analysis, Jarden highlights finance and professional services at the upper end of the “risk spectrum”, while healthcare and education remain relatively insulated.

In Sydney, Parramatta and North Sydney have higher exposure to back-office finance, media and publishing segments, which are viewed as higher risk.

On company feedback, Citi notes Charter Hall Group ((CHC)) and Charter Hall Retail REIT ((CQR)) view retail, particularly convenience, and industrial property as less exposed to AI disruption, given already elevated automation levels in industrial assets.

Management believes AI will be a positive tool to enhance human capital, delivering “tangible benefits” rather than workforce reductions.

Vicinity Centres ((VCX)) is using AI to improve operational capabilities, while Scentre Group ((SCG)) sees AI as central to enhancing efficiency and customer engagement.

Dexus reiterates AI impacts are likely to be most evident in administrative functions outside prime CBD areas. AI may also support onshoring of outsourced work and create new roles for “knowledgeable workers”, potentially increasing demand for prime office space.

Applying AI within office assets, companies are using thermal sensing chips and occupancy analytics to optimise lighting and HVAC systems, improving efficiency in smart buildings, Citi notes.

While tenant fit out costs are expected to rise due to higher spending on tech infrastructure for AI adoptions. Not too dissimilar to the impact of increased video conferencing.

Turning to the rollout of AI infrastructure, the large capital needs are likely to “favour” larger global market leaders like Goodman Group ((GMG)).

Citi is Buy rated on Charter Hall with a $26.40 target price; Charter Hall REIT is also Buy rated with a $4.50 target. Vicincity Centres and Dexus are both Neutral rated with $2.70 and $7.80 target prices, respectively.

Goodman Group’s consensus target price is $34.526 with six Buy-equivalent ratings and one Hold rating.

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