CBRE Says No Recovery Until Second Half of 2024

If the bigger forces in an industry are under assault from macroeconomic forces, there’s a good bet that many other companies should also expect a turbulent voyage.

CBRE Group in its latest earnings release and call made it clear that last quarter was bad — net income was down 57.3% year over year, cash flow from operations cut almost in half, while net revenue was off 4.2%.

Commercial mortgage origination, advisory services, property sales, and leasing revenue all down, said CFO Emma Giamartino in the earnings call. Limited sales in industrial and multifamily, which were the shining lights during the pandemic. Global workplace solutions, healthcare, energy, and logistics saw growth, but nowhere nearly enough to float the business.

The big winner? Uncertainty. JPMorgan analyst Anthony Paolone asked whether occupier hesitancy to make decisions might be a significant issue and, if so, how long that has been happening.

CBRE CEO Robert Sulentic said the dynamic had been happening “for a while.”

“It’s become a little more pronounced and we think it’s going to go into next year,” Sulentic said. “We don’t have a recession. Everybody knows that. We don’t have the kind of financial problems we’ve had in prior cycles, but we have a lot of uncertainty. And we have uncertainty around the cost of capital, which causes companies of all types to be careful about their expenditures that would run through their income statement. Of course, the minute that happens, they’re cautious about leasing.”

“Economic uncertainty continues to delay occupier decision making, particularly for large office and industrial deals,” Giamartino said.

That is translating into cost cutting.

“We discussed earlier this year that we were prepared to cut costs further if the market environment deteriorated,” Giamartino later added. “The time has come, and we will be reducing costs across our lines of business. We have already targeted $150 million of reductions in our run rate operating costs, primarily focused on our transactional lines of business that have been most negatively impacted by the market downturn. We expect to provide more detail on the benefit of our cost savings actions when we provide 2024 guidance next quarter.”

There were no offered details of the nature of the reductions, but the company said it didn’t expect a recovery until the second half of 2024.

As the first of the big brokerages reporting earnings for the third quarter, it’s a bet that many in CRE will focus on the other large firms to get a sense of what might be coming up.