B.youA dget manager at a large commercial brokerage traded kitchen scissors for a commercial chainsaw.
W.After a delicate approach to cost cutting in the first half of the year, a more aggressive approach to cost cutting this fall is likely to dampen property sales, rip through brokerage earnings and undermine year-end earnings expectations. approach.
N.Nationwide commercial real estate investment plunged 24% in the third quarter compared to the same period last year, according to CBRE data. No asset class was immune from the slowdown. His investment in offices has decreased by 35%. Multifamily sales fell 19% he. Industrial real estate, which has been the investment world’s darling for much of the pandemic, saw sales decline by 24%.
eShares of major publicly traded commercial real estate brokerages such as CBRE, JLL, Cushman & Wakefield, Colliers and Newmark have fallen significantly since the beginning of the year. As of Nov. 23, the decline ranged from 30% for his CBRE to 55% for Newmark. JLL’s stock topped out at about $162 per share, down 40% over the year, while Newmark’s was just $8 per share.
aAs the broader economy grapples with inflation and looming recession fears, commercial brokerage firms are being forced to act to preserve margins. Much of the extra weight seems to be cut from labor costs.
S.o So far, CBRE has been the most aggressive about planned cuts, outlining $400 million in cost savings, indicating many of these will be achieved through job cuts. Next, JLL last month announced an unspecified number of job cuts.
nevertheless Other publicly traded brokerage firms, such as Cushman & Wakefield, Colliers and Newmark, have yet to notify investors of the layoffs as of this writing.
“We believe all of these companies will take similar steps to protect their margins, even with fewer details provided at this time,” said JPMorgan Chase’s Anthony Paolon. “Most of the cost savings will likely come from people, but we can expect tighter restrictions on travel and entertainment.”
“[The firms] We are probably looking at all the job cuts,” added KBW’s Jade Rahmani. “I think some things are temporary, some things are permanent.
H.I am sick of
W.When CBRE reported its third-quarter earnings in late October, it said its capital markets business was “hit and hurt faster” than expected by rising interest rates.
MeThe Dallas-based company said it will implement a $400 million cost-cutting strategy over the next six months in response to a 43% year-over-year decline in capital markets earnings. Approximately $300 million equals permanent reductions, with approximately $175 million in reductions expected to be completed by the end of the year.
“This is a number that we believe can be reduced without impacting our ability to grow our business and serve our clients in the future.
T.The majority of these reductions are expected to come from headcount reductions and reduced discretionary bonuses, incentive compensation, profit sharing and commissions.
R.About two weeks after JLL indicated in its third-quarter earnings call that cost-cutting measures were being considered, the company began laying off an unspecified number of jobs in New York and Chicago, Bisnow reported.
J.LL did not disclose how many employees were laid off or what other measures were being considered, but said in a statement that it had “measures already underway” to “increase its focus on cost control.” ” refers to
“These actions may include difficult but necessary decisions to make certain roles within our business redundant,” the statement continued.
T.The predicament facing CBRE and JLL is being felt across the industry. Some brokerages have taken a pessimistic near-term view of the impact of rising interest rates on earnings.
“We expect the recession to affect our business for longer than 90 days ago,” CFO Emma Giamartino said on CBRE’s third-quarter earnings call. “We expect capital markets to recover, perhaps in the second half of 2020,” she said. [next] Year. However, the return will be less than originally expected. ”
J.LL said it spent $9.3 million on retirement benefits in the third quarter, expecting capital markets revenues and trading volumes to continue to decline. That’s eight times what he was in the same period last year.
“The overall outlook for the global economy in the coming quarters is not good,” CEO Christian Ulbrich said on JLL’s third-quarter earnings call.
Haushman & Wakefield expects capital markets earnings to decline in the fourth quarter, below last year’s total, “as a result of slowing trading activity due to economic uncertainty.”
“Cushman & Wakefield CEO John Forrester said on the company’s third-quarter conference call that it’s already taking steps to reduce costs in line with the changing volumes seen in its trading business. “It is reasonable to assume that recessionary conditions will continue to permeate the real estate sector, especially the transactional business.”
“Like a bat out of hell
R.Ahmani said KBW, which tracks CBRE and JLL, estimates that investment sales for both companies will fall by 45% in the fourth quarter. But brokerage executives, while acknowledging the short-term pain, are optimistic about their ability to bounce back in the long run.
“We came out of the pandemic like bats from hell. We’re going to bat out of hell like we did during the pandemic,” said Barry Gosin, CEO of Newmark. “Our employees are creative because we have attracted talent.”
eCBRE and JLL executives said they expect trading volumes to recover by the end of next year. Meanwhile, Cushman & Wakefield says $1.5 billion in liquidity should be enough to withstand an economic slowdown.
“We are well positioned to weather this,” Forrester said.
afurther diversification may become essential if investment sales in CBRE, JLL and Cushman & Wakefield all point to higher rental income in the third quarter and growth in their property management divisions in their earnings reports.
HaBRE’s global leasing revenues increased 14% in the third quarter year-over-year. Brokers say they are consistent across all property types, including offices. Cushman & Wakefield said he saw global leasing revenue grow 27% in his first nine months of 2022, citing improvements in the office sector. JLL is up about 20% in his first three quarters, according to brokerages.
W.It’s no surprise that executives take a rosy view of their businesses, but some market analysts agree with the long-term positive sentiment.
“I think the story here is really short-term uncertainty,” said Stephen Sheldon of William Blair. There’s funding, and I think there’s a lot of favorable tailwinds when you look at the layers in this space.”