JLL performed slightly better than expected in the third quarter despite the extreme slowdown in transaction activity, but its outlook is gloomier than it was three months ago.

The brokerage giant’s net income dropped more than 57% in the third quarter to $59.3M, down from $138.1M in Q3 2022. Its $5.1B revenue for the quarter slightly exceeded analyst expectations, according to Seeking Alpha.

JLL has brought in $357.9M less in revenue year-to-date than by the same time in 2022.

“Real estate market conditions remain challenged, as interest rate volatility and wider-than-normal bid-ask spreads continue to create uncertainty,” JLL CEO Christian Ulbrich said during the company's earnings call Thursday morning.

Ulbrich said he had expected markets to start recovering during the second half of this year, but that projection has been moved out to the second half of 2024 at the earliest. The dampened outlook means the brokerage expects its longer-term performance to lag.

The company had projected to hit fee revenues of at least $10B by 2025.

“As a result of the industrywide softness and transaction activity, we are extending the timeline to achieve all of our midterm targets beyond 2025,” Ulbrich said.

He said investment activity dropped 14% between the second and third quarters, when traditionally it increases by about 7%.

All brokerage firms and real estate businesses continue to feel the impact of the malaise prompted by the Federal Reserve’s aggressive raising of interest rates and a slowdown in corporate real estate decision-making as companies wrestle with bringing employees back to the office more often and the impacts of recent geopolitical tensions.

Cushman & Wakefield announced that it could possibly sell off pieces of its business as a way to raise cash to offset low deal volume as it reported a net loss of $33.9M for the quarter. CBRE reported a nearly 50% drop in cash flow from last year and a 38% fall in net income year-over-year while disclosing plans to cut an additional $150M in expenses a year after vowing to cut back by $400M. Newmark said it had already achieved $50M in cost savings and expects to cut back by another $25M.

JLL didn't announce any new cutbacks but does expect to continue its previously announced $210M cost-cutting program, with the final $40M in cuts expected next year.

“We certainly haven't foreseen the turmoils of the last couple of months, but we stay very optimistic. We are prepared for every uptick,” Ulbrich said. “As we had stated, we haven't had any people which we will need to rehire if the market is recovering, so JLL is ready for any improvement in the market environment. And so I guess we will see some growth [in 2024], but I will not predict the size of that.”

JLL's revenue from leasing dropped 22% year-over-year, while its fees from investment sales fell 32%. Its revenue losses were partially offset by increases in its property management and portfolio services business lines.

JLL executives said that while many large companies have put more robust return-to-office plans in place and are gravitating toward high-quality office space, businesses in general are still reticent to make major real estate decisions.

“It's really around the uncertainty in the macro environment and geopolitical events that is causing some of these larger decisions to be put on hold,” JLL Chief Financial Officer Karen Brennan said during the call. “There was negative net absorption in the quarter, but we are seeing an uptick in new space requirements, and so people are out looking for more. It's just a matter of the timing of when those will hit in the current environment.”

Sluggish sales activity was aggravated by another interest rate increase in July, which building owners have yet to reflect in their portfolio values, Ulbrich said, despite the Fed holding off on further rate hikes since. Ulbrich also said geopolitical tensions from the war between Israel and Hamas are causing bid-ask spreads to widen again.

“The recent increases in interest rates are not yet reflected in real estate values, and it will take further declines before transaction volumes will notably pick up,” he said. “And so now, with the Fed for the second time not making a move, hopefully we see in the next couple of weeks to the end of the year, which is very important for us and the capital markets, bid-ask spreads narrowing again.”