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Commercial real estate transactions look set to remain in the doldrums for some time, and brokerage firms are feeling the pain.
The core consumer price index rose faster in August than the month before, signaling renewed economic strength and with it a growing potential for further increases to the federal interest rate, Bloomberg reports. As a result, CBRE Chief Financial Officer Emma Giamartino said she expects the company's earnings per share in the third quarter to drop between 15% and 20% from Q2.
“The recovery clearly has been pushed back,” Giamartino said at a conference hosted by Barclays, Bloomberg reported.
After August CPI figures were released Wednesday, stock prices for the largest commercial real estate services firms sank.
CBRE opened Wednesday at $84.88 per share and closed at $79, a 7% drop. At one point Wednesday afternoon, CBRE's stock price dropped the fastest it had since June 2020, Bloomberg reported. JLL opened at $169.13 per share and closed at $156.02, a nearly 8% drop. Cushman & Wakefield opened at $8.74 per share and closed at $8.14, almost a 7% decline.
High interest rates aren't the only thing cooling real estate deals. After the failures of Silicon Valley Bank and Signature Bank in the spring, a combination of shaken confidence and heightened scrutiny from regulators has driven regional banks away from originating new CRE loans — a trend that looks unlikely to reverse until next year, at the earliest.
With so much of commercial real estate financed by debt, even a staggering increase in debt maturities this year compared to 2022 hasn't been enough to shake loose more deals. New loan origination was down 53% year-over-year in Q2, the Mortgage Bankers Association reported.
Instead, more and more borrowers are securing extensions and modifications for assets they can afford to keep holding. That has further reduced the number of properties likely to change hands in the next few months, as distressed asset sales remain few and far between.
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