Brokerages were having a big year — then came the rate spike.
Seesawing 10-year Treasury yields, which cracked 5.3% in early October before easing to about 4.8%, have flattened brokerages’ fourth-quarter capital markets outlooks and injected fresh volatility into financing.
Executives spent their Q3 earnings calls bracing investors for the fallout.
“The cap rates have gone up, deals that were under contract are getting retraded, deals that might have otherwise gone under contract aren't happening,” CBRE CEO Bob Sulentic said on the company’s Q3 earnings call Oct. 22. “We're seeing refinancings in some places that we thought would see sales.”
)
The fourth quarter has high stakes for brokerages’ capital markets business: It has historically represented 30% of full-year capital markets revenue, with December alone making up about 15% of annual activity, JPMorgan Chase analysts wrote in a note published in mid-October.
Those analysts wrote that some disruption in CRE capital markets is “highly likely,” and that it was hard to imagine that fourth-quarter capital markets revenue for CBRE, JLL, Cushman & Wakefield and Colliers does not see a “meaningful negative impact” from the interest rate environment.
Still, they wrote that projected haircuts are much more modest than in previous capital markets downturns.
The analysts revised down their fourth-quarter investment sales and mortgage origination revenue to flat year-over-year growth, down from up 10% previously. In 2027, the analysts assume a bigger hit, with revenue down 20% year-over-year in Q1, down 10% in Q2, flat in Q3 and then recovering to be up 10% in Q4.
“What's unique about what’s happened in the last few months on the capital market side versus what we've seen previously when these things occur is that there's not a leasing or fundamental disruption that's going along at the same time,” JPMorgan Chase Executive Director Anthony Paolone said.
“That's really big because if it's isolated really to a rate matter, that seems to make its way through the system much quicker and can adjust a bit quicker than if your cash flows that you're underwriting are also coming into question," he added.
JLL’s capital markets revenue is up 21% through Sept. 30, while Cushman & Wakefield’s capital markets revenue is up 10% in the same period. Newmark’s capital markets revenue is up 14.5% on the year.
The volatility is more of a challenge for Marcus & Millichap than the higher rate environment, CEO Hessam Nadji said on the company's Nov. 6 Q3 earnings call. If higher rates had occurred and stabilized at a sustainable rate, the industry would recalibrate and be able to move on to a new cycle, he said.
“The disruptive nature of this truly elongated downturn is very different than any cycle that I've been in, really, since the early '90s,” Nadji said.
Average daily property listings were up 24% in September compared to August, according to data from Lightbox. But downstream, environmental site assessments and appraisals were both down, which suggests that properties are entering the deal pipeline but not necessarily progressing through underwriting and financing, said Lightbox Research Director Dianne Crocker.
“For the market, stability becomes more important than the absolute level of where rates end up,” Crocker said. “If we see the 10-year settle down, if we can get some predictability about what the Fed will do, then the market's going to feel even better about closing deals. But if we continue to see the Treasury jumping around as it has been, it's a different ballgame.”
Over 80% of traders are expecting a 25-basis-point rate hike at the Federal Reserve’s December meeting, according to CME Group’s FedWatch tool.
Even during the peak of rate volatility about a month ago, Colliers Senior Vice President Tyler Ziebel, a Chicago industrial broker, said he was still taking phone calls from buyers several times a week, saying they had capital to deploy for deals meeting their criteria.
But the timing of the volatility at the beginning of the fourth quarter happened at the point when brokers want to be launching those deals to get them ready for a year-end close, Ziebel said.
At that point, some of those deals were put on hold with an expectation of a couple of weeks' wait time to make a move. Weeks turned into more weeks, and some dealmakers hit an inflection point where waiting until Q1 makes the most sense.
“It's just more of a math problem than a fundamental unknown in the market,” Ziebel said.
Some brokerages were more confident in the path forward, even as they adjusted Q4 expectations.
Cushman & Wakefield CEO Michelle MacKay said on the company’s Nov. 4 Q3 earnings call that its capital markets pipeline has seen minimal impact following the recent changes, and that the rate-sensitive multifamily business is less than 15% of its capital markets revenue.
Colliers CEO of Commercial Real Estate Christian Mayer said on the company’s Nov. 4 Q3 earnings call that he believes if there is another capital markets shock, the company will benefit from diversification built into its business lines.
“Our pipelines look good for the fourth quarter,” Mayer said. “It will still grow, but it just won't grow as much as we expected.”
)
JLL CEO Christian Ulbrich said on the company’s Oct. 28 Q3 earnings call that it still has a lot of confidence that most of its capital markets deals planned for Q4 will close then, and not many will fall into 2027. He said the time to close deals is getting longer, and the pipeline itself is still growing. He said very few of the company’s capital markets deals are “actually collapsing.”
The company’s full-year guidance projects capital markets revenue in the midteens, with implied fourth-quarter growth flat up to low single digits.
“The question around the increase in interest rates is something which makes it a bit more unpredictable,” Ulbrich said. “Our forecast is probably a bit on the cautious side.”
Newmark was perhaps the most bearish of the major brokerages reporting earnings over the past two weeks when looking ahead to 2027.
Chief Financial Officer Michael Rispoli said on Newmark’s Oct. 29 Q3 earnings call that the company expects industry capital markets volumes to be down through “at least the first half of next year” due to the recent rise in the level and volatility of rates.
“A downside scenario would be a sustained interest rate volatile environment, continued increase in the 10-year treasuries and volatility in that rate that sustains through the balance of next year, that could drive capital markets down probably in the 20% to 30% range,” Rispoli said. “An upside scenario is there's some pain in the first half of the year and things get better in the second half.”
In response to the comments, Keefe, Bruyette & Woods Managing Director Jade Rahmani said on the call that the downside scenario seemed “quite stark” when considering improving office fundamentals and industrial’s burgeoning secondary use case with storage of data center components.
Rispoli said the company gave a wide range of capital markets scenarios because it believes there's a wide range of outcomes that could happen in the market. The base case scenario is that things get better and the company has a “pretty good year,” he said.
Gordon Black, who has worked for Heitman for nearly four decades, runs an open-ended core-plus fund for the company. Black said global real estate fundamentals are “excellent,” but that interest rates will be the determining factor in unlocking transaction volumes.
“I'm bullish in a way, but I’m very selective in what we're doing,” Black said. “I have money to deploy, and I'm being very selective in what it is because I think it's just choppy waters.”
Not all asset classes are impacted equally by rate volatility. Rahmani told Bisnow that multifamily is the most at risk of rate-driven valuation shifts because it's the lowest cap rate asset class.
Cap rates on office have already gone through a massive adjustment, and higher cap rates give office a cushion to deal with some of the interest rate spikes, Rahmani said. KBW is starting to model low- to mid-single-digit volume declines in the fourth quarter, followed by incremental improvements across 2027.
“In Q4, we'll probably start to see the softness, but it'll really be clear and transparent in the first quarter of 2027,” Rahmani said.
Rahmani said he’s seen a little bit of headcount cutting at some companies — though not at brokerages yet. He said sustained volatility could ultimately impact employment.
“The longer this goes on, then there could be headcount reductions,” he said.
)
)
)
)
)
)
)
)
)
)
)
)