Newmark, Cushman Ride Deal Recovery To Higher Profits, Expect More To Come

CRE deal flow is picking up, which led two of the industry’s top brokerages to post strong revenue gains across multiple verticals and improve their expectations for future activity.

The revenue growth posted by Cushman & Wakefield and Newmark was driven by an uptick in office and industrial leasing, as well as a resurgence in capital markets transaction volume. And they expect to pick up steam from here.

“We're going to continue to grow the company,” Newmark CEO Barry Gosin said on the company’s third-quarter earnings call Thursday. “There's still running room, there's still white space, and we are still putting all the pieces together to build a complete foundation.”

Leasing activity increased for Newmark in key markets like New York, Texas and Northern California, which boosted its related fees by 13.7% year-over-year to $318M. It increased its top-line revenue by 25.9% to $863M.

Cushman’s overall revenue of $2.6B for the third quarter was an 11% increase year-over-year. Its leasing revenue rose 9% to $538M, primarily driven by office and industrial leasing in the Americas. CEO Michelle MacKay said on the company’s Q3 earnings call that it had a 40% increase year-over-year in the number of “large and megadeals” in its pipeline. 

“In both industrial, logistics and office, as you can see, as our clients are moving to better-quality space, they are paying more rent for it, and we've seen a big valuation bump in those leases,” MacKay said. 

Newmark increased capital markets revenues by 59.7% to $301M, buoyed by significant activity across multifamily, office, data centers and retail. The company advised on several high-profile transactions, including a $4B joint venture supporting the development of a Pennsylvania data center campus and a $1.4B recapitalization of a New York City office property.

Cushman boosted its capital markets revenue by 21% to $204M, a product of sturdy performance across all asset classes and deal sizes in the Americas.

Alongside its quarterly earnings release, Cushman raised its full-year adjusted earnings per share guidance to 30% to 35% growth, up from previous guidance of 25% to 35%. Newmark also upped its adjusted earnings per share guidance to 24% to 33% growth, an increase from previous guidance of 20% to 28%. 

The brokerages also doubled down on their data center commitments in Q3, a profit engine powering many CRE brokerages.

When Gosin was asked whether capital for data centers has outpaced the ability to physically build new infrastructure, he said the money always comes first. Capital is flowing to fund the physical work that will follow, he said, and when those projects are complete, Newmark expects to be involved again on the financing and public market side.

“There is an endless amount of interest in data centers,” Gosin said.

The company is maintaining a disciplined approach to growth in the data center sector, even as demand accelerates, he said, adding the firm aims to stay nimble rather than overextend, relying on a lean team that can scale up or down as needed.

“We think we're appropriately staffed to scale now,” Gosin said. “We think there are parts of it that we could expand in the geographies, probably more on the leasing side of the data center business. But money is fungible. It travels everywhere.”

Goldman Sachs Research forecast in February that global power demand from data centers will increase 50% by 2027 and by as much as 165% by the end of the decade.

To meet that demand, MacKay said Cushman is rapidly scaling its platform. The firm also launched its proprietary site selection tool, Athena, in June to help clients identify optimal locations and power sources more efficiently.

“We've been involved in data centers for a number of years and expect it to become a bigger part of our business going forward,” MacKay said.

Cushman also took steps to reduce its debt load in the third quarter. In August, the brokerage prepaid $150M in principal outstanding under its term loans due in 2030.

William Blair analysts said that while Cushman consistently trades at a discount to the other CRE names the investment bank covers due to its higher net leverage, they believe the discount should begin to narrow as Cushman’s leverage gradually declines. 

“We are even more encouraged by management’s strong and improving execution in recent quarters, and believe that the current valuation remains highly attractive for the likely growth profile especially as the brokerage businesses continue to recover,” William Blair analysts wrote in a note.

Cushman and Newmark said they expect further growth in the fourth quarter.

Newmark Chief Financial Officer Mike Rispoli said the company’s transaction pipelines remain strong and that the brokerage feels pretty good about continued market strength. Overall growth will come down to the timing of when transactions close. 

“We don't see anything in the market that is slowing transaction activity down at the moment,” Rispoli said. 

MacKay echoed the optimism. 

“Simply put, the momentum is continuing into the fourth quarter,” MacKay said.