Dealmakers 'Powering Through' Uncertainty Push CBRE To Big Earnings Beat

CBRE updated its full-year guidance, making its former ceiling into its new floor after second-quarter activity was stronger than expected.  

The global brokerage firm posted $9.8B in Q2 revenue, up 16% from the prior year, and reported a 47% increase to core earnings per share, which was at $1.19 at the end of June. The strong quarter led CEO Bob Sulentic to predict that this would be one of the firm’s best years ever. 

“We expect to set a new earnings peak this year, just after the 2023 trough in the commercial real estate downturn, even though capital markets activity remains well below prior peak levels,” Sulentic said on the company's quarterly earnings call Tuesday morning. 

Capital markets growth exceeded the firm's expectations, with global property sales up 20%, and 25% growth in U.S. sales activity was led by data center, office and retail trades. 

“A lot of what you're seeing is that the spread between bid and ask has gotten very narrow or gone away,” Sulentic said. “There is a lot of capital out there — we have it, and other people have it that want to buy real estate — and there is a huge amount of sell-side interest on the part of owners of real estate that haven't been able to sell it for the last two years.”

Investors are coming back to the table after years of waiting for capital markets conditions to improve or for meaningful changes to debt costs, Sulentic said.

“Clients would like interest rate cuts. I don't think they're waiting for them,” he said. “What we're seeing is lots of financing activity and significantly escalated sales activity. We expect that to continue for the rest of the year.”

Tariffs, macroeconomic uncertainty, high interest rates and a potential recession continue to loom, but CBRE’s customers are no longer holding off for sunnier days. 

“Buyers and sellers are kind of powering through that and feeling that things are going to go relatively well,” Sulentic said. 

Global leasing activity grew by double digits across all major regions, and leasing revenue rose 14% to $995M, the largest haul for any second quarter in the firm’s history. Secondary markets are leading the charge, with leasing revenue accelerating faster outside of major markets. 

“U.S. leasing was led by a 15% increase in the office sector, driven by larger leases and broad-based growth across the country,” CBRE Chief Financial Officer Emma Giamartino said. “Growth in nongateway markets outpaced gateway markets, pointing to increased momentum in regions outside of the largest cities.” 

Industrial leasing growth exceeded expectations, thanks to robust activity from third-party logistics providers. CBRE had projected a flat year but now projects double-digit increases.

“The year is going to be better than we thought it was going to be,” Sulentic said of industrial activity.

Strong leasing and sales activity led the brokerage to boost its full-year forecast, Giamartino said. Its new core earnings per share outlook ranges from $6.10 to $6.20, up from the $5.80 to $6.10 forecast at the end of Q1. 

Giamartino also pointed to second-quarter outperformance in CBRE’s buildings operations and experience segment, which includes property management, Industrious, the coworking platform that CBRE acquired at the start of the year, and Turner & Townsend, the project management business that CBRE also completed rolling into its platform in January. 

Investors reacted positively to the earnings, and the stock opened up nearly 6% from Monday.

“Stepping back, we think this quarter was important for CBRE (and its peers),” JPMorgan Chase analysts said in a note Tuesday. “Liberation Day appeared to be a fairly minor event for CRE, but we think the investment community needed to see this in CBRE’s results and guidance — and it did.”

Broader CRE market conditions are still far from ideal, but the confluence of factors that had weighed on the sector are waning, which will continue to be a headwind for the firm through the year, Sulentic said. 

“If interest rates come down, or if interest rates being where they are and the lack of new product being where it is causes rental rates to grow up — or the perception that rental rates will go up — you're going to see some trading that you're not seeing yet,” he said.