www.bisnow.com Open in urlscan Pro
99.86.4.4  Public Scan

Submitted URL: https://go.bisnow.com/dc/6eAkTLeYKpE48se1AIKIk5Fpp-VIebGWvZNTMp1fTpqNxSvvm8YIJus0jO-9TPqTQSngNuwbvqbmbLFsA76i6OaCiEL5g...
Effective URL: https://www.bisnow.com/national/news/commercial-real-estate/cre-brokerage-firms-issue-notes-of-optimism-amid-year-end-i...
Submission: On May 11 via api from US — Scanned from DE

Form analysis 15 forms found in the DOM

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#

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News


BROKERAGE FIRMS ISSUE NOTES OF OPTIMISM AFTER YEAR-END IMPROVEMENTS


National View count: 0
National
February 28, 2024 Jarred Schenke, Atlanta





Some commercial real estate brokerages continued to struggle at the end of last
year. Others segued into the new year in the black.

But universally, executives with the largest publicly traded brokerage houses
expressed optimism that the embattled commercial real estate markets have
finally hit bottom and that business will improve later this year.


Pexels/Johannes Plenio
CRE brokerage executives are seeing a break in the storm hitting the industry.

Most firms managed to turn a profit in the final quarter of 2023, despite the
continued fallout in both capital and leasing markets spurred by work-from-home
and interest rate impacts. CBRE surpassed stock analyst expectations, Newmark
tallied triple-digit growth in net income, and Cushman & Wakefield experienced
a 5% increase in leasing activity.

The overall brokerage performances at the end of last year signaled that
commercial real estate markets may finally be back on the upswing, Piper
Sandler Managing Director Alexander Goldfarb said.

“The fact is that you’re seeing the debt markets slowly heal,” said Goldfarb,
who covers Newmark as an analyst. “Barring some further major recession or
something, we have bottomed out.”

Overall, firms that focused on diversifying their revenues toward services and
management fared better at the end of 2023. The largest global brokerage firm,
CBRE, posted a net income of $477M in Q4, beating analyst expectations with a
nearly 500% increase over the same period last year. 

Other firms saw an updraft at the end of 2023. 

Newmark reported a Q4 net income jump of 468%, from $6.4M to $36.5M
year-over-year, fueled by the firm’s handling of more than $50B in loans from
the failed Signature Bank for the Federal Deposit Insurance Corp.

Colliers saw net earnings of $95M in Q4 and $254M for the year, both down from
2022. And while Cushman & Wakefield lost $35.4M in 2023, the firm managed to
turn a Q4 profit of nearly $70M.

Nearly all of the firms reported that their reliance on recurring revenues
through management and consulting carried them through 2023.

Colliers, Cushman & Wakefield, JLL and CBRE reported growth in management and
consulting fees, with CBRE tallying a nearly 13% increase in net revenues to
$2.4B in Q4 for its workplace solutions segment. Many of the brokerage shops
have been diversifying their revenues toward contract and management income to
help weather commercial real estate cycles, said Suryansh Sharma, an equity
analyst with Morningstar Research Services.

“CRE brokers have materially increased their exposure to recurring revenue
streams in the past decade,” Sharma said in an email to Bisnow. “This is one of
the main reasons why these companies have held up relatively well in the past
year even though transaction volume has declined materially.

“We believe the larger players will continue to gain market share in the
brokerage business over time, and this is what we have seen in the past year.”

Marcus & Millichap, which focuses almost entirely on brokering investment sales,
failed to eke out any profits last year. The firm tallied a $10.2M Q4 loss, with
revenues dropping 37% during that period to $166.2M, and a full-year loss of
$34M as the investment sales business dried up. While Marcus & Millichap CEO
Hessam Nadji said during a Feb. 16 earnings call that buyers and lenders
continued to have difficulty reaching a consensus on asset pricing, the gap was
narrowing.

“The good news is that the passage of time and the market's realization that
interest rates are unlikely to return to record lows is starting to spur the
valuation reset necessary to bring buyers and sellers back into alignment,”
Nadji said. “We anticipate that assets previously withheld from the market in
the hopes of better pricing will be brought to market at more realistic prices
in the quarters ahead.”


Wikimedia Commons/Raysonho
A CBRE for-lease sign outside an office building in Markham, Ontario

In other signs of the market thawing, none of the brokerage firms announced
additional layoffs or cost-cutting beyond those previously planned.

In 2022, Canadian commercial real estate brokerage Avison Young announced
layoffs as a result of collapsing markets. In March of last year, JLL announced
further headcount cuts as part of an effort to realize $140M in cost savings.
Other large firms similarly cut costs last year in response to the deteriorating
market.

Mike Lipsey, who heads commercial real estate training firm The Lipsey Co. and
counts most of the major brokerage firms among his clients, said the
cost-cutting that firms began in 2022 at the outset of troubles paid off over
the past year.

“Most of the good firms recognize a recession is on its way, and they just start
eliminating any expenses that are not absolutely needed. They do a wonderful job
in cost control,” Lipsey said. “Especially the larger firms, they got after
their expense control. At the same time, they improved the diversification of
their revenue. That’s a pretty good combination.”

While no executives said they expect miracles in the first part of this year,
many expect business to turn around during the second half. This is especially
true for leasing, as more companies become emboldened to make space decisions,
and in capital markets, especially if the Federal Reserve begins to chip away at
interest rates, as many expect it will.

“For the first half of the year, we expect capital markets and leasing
transaction volumes to be roughly flat to 2023,” Colliers Chief Financial
Officer Christian Mayer said during a Feb. 8 earnings call. “In the second half,
we anticipate year-over-year increases in activity, particularly in capital
markets, coinciding with their expectations of stabilization in interest rates
and an improvement in credit conditions.”

Rick Lackey, the former head of the Atlanta office of Grubb & Ellis, which
folded into Newmark, said this real estate cycle was characterized by an
atypical bull market that lasted a decade, during which some younger
professionals hadn't experienced a sharp downturn until just now. That created a
shock to the system when interest rates, which had been nearly zero since the
Global Financial Crisis, shot back up.

“It’s just another cycle. This time it just took 10 years to begin the downward
swing,” said Lackey, who runs the Real Professionals Network, an organization of
more than 20 lead-sharing groups made up of CRE professionals, many of whom are
brokers for the big shops. “A lot of people … haven’t been through a cycle. They
think it’s interest rates and the economy and the cost of hot dogs. It’s not.
It’s a cycle.

“My speculation is it will be a very shallow dip,” he added. “I don’t think
we’ll go into recession. But we definitely will have a real estate recession, if
we’re not already having it.”

Contact Jarred Schenke at jarred@bisnow.com
See Also: Brandywine Breached: Philly CRE Firm Falls Victim To Cybersecurity
Hack

Related Topics: CBRE, Colliers, Avison Young, Marcus & Millichap, Rick Lackey,
Hessam Nadji, Signature Bank, REAL Professionals Network, Cushman & Wakefield,
Alexander Goldfarb, Newmark, Morningstar Research Services, Piper Sandler,
Christian Mayer, Suryansh Sharma, Mike Lipsey, The Lipsey Co.


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