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Brokerage Firms Issue Notes Of Optimism After Year-End Improvements


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.

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.”

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.”