American firms are adopting artificial intelligence, but for now, they're still leasing office space for their human workers.

Office property stocks are up 35% in the June quarter, after sinking in the March quarter on fear that AI will hollow out white collar employment in law and finance. Investors took heart when New York-focused real estate investment trusts like SL Green Realty and Vornado Realty reported strong first quarter results.

"These stocks just got so oversold," Evercore ISI analyst Steve Sakway tells Barron's. "Then they put up really good leasing numbers, and that leasing has continued."

"I wouldn't say that we're fully out of the woods, but the leasing environment has definitely felt better over the last three to six months, " he says.

Covid clobbered office REITs and many other real estate stocks, and the group's recovery has been fitful. On average, office REIT stocks lost about 14% last year, and then another 17% in this year's first quarter.

Investors worried that general job growth would slow and powerful new AI tools demonstrated by Anthropic had some seeing an end to employment for lawyers, insurance brokers and software writers.

No one yet knows whether AI will take white collar jobs in the long run, but office property owners said they were seeing no robot threats. After a drop in 2025 same-store profits, profits and cash flow are rising this year at SL Green and Vernado, as markets like Manhattan's midtown show rising occupancy.

Not everyone who follows office real estate thinks the REITs are in the clear. Short interest in the office stocks remains higher than any other real estate category, with negative bets placed on 8% of free-trading office REIT shares.

But Sakwa is constructive on the REITs, whose higher-quality properties are gaining share from private landlords. He has Buy ratings on SL Green, Vornado and the West Coast-focused Kilroy Realty. San Francisco's software tenants have been important to the latter firm, but Sakwa says that AI winners like Anthropic and OpenAI are grabbing up space in that city's central business district.

He's also partial to COPT Defense Properties, a REIT whose tenants in the defense and intelligence industries can't work from home. As a result, its locations are more than 95% leased.

Landlords are competing hard for white collar tenants and spending fairly heavily to offer them attractive spaces. But Sakwa thinks people will continue reporting for work in places like New York and San Francisco.

"The companies are doing what they can in a challenging market," he says.

Write to Bill Alpert at william.alpert@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 24, 2026 14:27 ET (18:27 GMT)

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