CBRE Stock Surges After Reporting Big Jump In Profit, Raising Outlook For 2024

Leaders at the world’s largest commercial real estate brokerage firm believe the sun is rising again on the global office market as it sets optimistic expectations on its earnings this year.

CBRE reported a net income of $477M in the fourth quarter of 2023, a nearly 500% increase from the same period last year. Its revenue increased by 9% over the same period and its free cash flow was up 6.2%. 

The brokerage reported earnings per share for the year at $3.84 and said it expects that figure to rise to between $4.25 and $4.65 in 2024. The midpoint of that range, $4.45, would entail growth of roughly 16% and come in above analyst expectations of $4.39. 

The earnings guidance and revenue performance also beat analyst expectations, sending CBRE's stock price up more than 9% to $94.79 per share as of noon Eastern time.

For the year, CBRE reported a net income of just over $1B on revenues of $18.2B, down 27.8% from $1.4B in 2022 on revenues of $18.7B.

CBRE executives, on an earnings call Thursday morning, projected confidence that the commercial real estate transaction markets, both on the sales and leasing side, will improve from last year's nadir.  

CBRE Chief Financial Officer Emma Giamartino said leasing is expected to grow “modestly” in 2024 as employers bring workers back to the office more frequently and concerns about a potential recession turn toward a potential soft landing for the overall economy.

“We’re cautiously optimistic that the worst is over for office leasing, particularly for Class-A properties that generate approximately two-thirds of our leasing revenue,” Giamartino said during the Q4 earnings call Thursday morning. “The apparent stabilization of office utilization rates may make more employers confident enough to commit to office spaces.”

CBRE's revenue from its advisory services segment was nearly $2.6B in Q4, down 1% year-over-year. Global leasing revenues were up 1%, driven by growth in Europe and the Middle East, while America's leasing was flat.

Office leasing activity was especially buoyed by corporate executives focusing on getting employees back to the office, said CBRE CEO Bob Sulentic.

“You can’t talk to a corporate that would tell you that office building occupancy, either in buildings they own or buildings they lease, is not important to their business. It's important to all of them,” Sulentic said. “And so what you're seeing is that people are redoing their space trying to make it a better environment for their employees, that make their employees more efficient, more engaged. We think it'll be a very big asset class going forward. Bigger than the headlines might suggest.”

Global sales revenue dropped 19% in Q4, with sales revenue in the Americas falling 22%, CBRE reported. But sales declines in industrial and retail were less pronounced than in office and multifamily.

The firm's overall performance got a boost from the nearly 13% increase in net revenues from its Global Workplace Solutions segment, fueled by growth in both facilities and project management. Its real estate investments segment saw profit surge despite a decline in revenue, attributable to higher incentive and asset management fees, the company reported.

CBRE reported positive growth in other advisory services lines, including a 6% increase in loan servicing and 9% jump in property management net revenues during Q4. That segment is anticipated to receive a further boost this year when CBRE expects to complete the $800M acquisition of J&J Worldwide Services.

Sulentic said he expects investment sales to improve toward the latter half of the year on a bet that the U.S. Federal Reserve will cut interest rates, the main catalyst that prompted the downturn in the commercial real estate industry last year.

“Investor and lender sentiment has improved, and we anticipate this will lead to increased transaction volumes starting in the second half of the year when short-term interest rates are expected to fall,” he said.

The sunny update stands in stark contrast to the firm's Q3 earnings release, when it announced it would make an additional $150M in cuts, primarily to its brokerage business.

While it has made those cuts, for the trailing 12 months ending on March 31, it expects to buy back $500M in its outstanding shares and spend $500M on co-investments in its real estate investments segment.