The world’s largest commercial real estate services firm is making another large round of cost reductions, targeting its core brokerage business, after a worse-than-expected performance in the third quarter.
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CBRE revised its earnings expectations for the second consecutive quarter, citing a slowdown in leasing and sales due to a challenging capital markets environment. In response to the weaker environment, CBRE announced on its quarterly earnings call that it has identified $150M in cuts, focused primarily on its transaction lines of business.
“We discussed earlier this year that we were prepared to cut costs further if the market environment deteriorated,” CBRE Chief Financial Officer Emma Giamartino said on the call Friday morning. “That time has come, and we will be reducing costs across our lines of business.”
The firm had announced it was targeting $400M in cost reductions during its Q3 2022 earnings call. Roughly $300M of those cuts came in the form of layoffs.
It is unclear how this latest round of cuts will impact CBRE staff. The company has more than 115,000 employees around the world.
The firm’s cash flow for the quarter was $382M, a 49.3% drop from the prior year. Its net income was also down by 38% year-over-year, coming in at $226M.
“We believe this year will be the trough for our earnings and anticipate meaningful growth next year,” Giamartino said.
CBRE expects its earnings per share will decrease by somewhere in the mid-30% range, Giamartino said, citing CBRE’s exposure to interest rate-sensitive business areas.
The dimmer outlook comes as expectations sink in that higher interest rates may stick around for longer, resulting in delayed sales and leasing decisions and a knock-on effect for CBRE’s business. The company now anticipates that transaction activity won’t rebound fully until the second half of 2024 at the earliest, CEO Bob Sulentic said.
“Uncertainty around interest rates is one really prominent fact, and the expectation that they're now going to come down later than we previously thought,” Sulentic said. “No. 2, there's still a view that values are going to come down some, that privately held assets haven't come into line yet.”
Globally, CBRE’s leasing declined by 16% from a year ago, and the decline was more acute in the Americas, where leasing declined by 21% year-over-year. Sales revenues also demonstrated a similar pattern, falling year-over-year by 38% globally and by 41% in the Americas. The company said leasing has been slower than it anticipated.
Mergers and acquisitions activity has also slowed for the company as it adjusts its risk appetite amid higher capital costs, while seller expectations have failed to keep up.
“We need seller prices to come down for us to be able to execute some of these deals,” Giamartino said.
Meanwhile, the company has continued to make strategic investments with $150M invested so far this year on multifamily and industrial acquisitions, Giamartino said.
It took a loss in its development business — it owns Trammell Crow — because asset sales have been slower than expected, it said in its earnings release. Sulentic said the company will delay selling more of its developments until market conditions improve.
CBRE continued buying back its own shares, completing $500M of stock buybacks during the third quarter to reach $630M so far this year. Its stock ticked down by less than 1% in intraday trading Friday.
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