Another Brokerage Says CRE Recovery Won't Happen Until H2 2024

On the heels of CBRE saying it doesn’t see a full recovery happening until the second half of 2024, Cushman & Wakefield, in its 2023 Q3 earnings call, said much the same.

“Looking ahead into next year, given the recent move higher in interest rates and continued uncertainty around Fed actions, we expect that a market recovery in brokerage may be delayed until the second half of 2024,” said Cushman & Wakefield CFO Neil Johnston.

“Despite current market conditions, we believe the work we’ve done throughout 2023 on driving free cash flow, achieving cost efficiencies and strengthening our balance sheet, positions us extremely well financially to navigate the upcoming year.”

The numbers showed third quarter revenue of $2.3 billion down 9% over the same period in 2022. Property, facilities, and project management were flat while leasing, capital markets, and valuation and other declined 16%, 33%, and 17% respectively. There was a net loss of $33.9 million.

Looking at any CRE earnings in 2023, it’s important to remember that in addition to difficult conditions, 2022 was a relatively strong year, creating a challenging baseline for comparison. Cushman & Wakefield CEO Michelle MacKay emphasized paying down debt while growing earnings before interest, taxes, depreciation, and amortization, or EBITDA, to reduce leverage to between 2% and 3%.

The company has also been focused on reducing expenses by a target $130 million annually. Johnson said they had already realized $98 million year-to-date and were slightly ahead of where they planned to be.

Part of the revenue puzzle for Cushman is commitment from tenants.

“So, this year, we’ve got a couple of large leases this quarter for occupiers, but we’re also seeing them holding off on decision-making,” MacKay said, adding that “occupiers have taken a defensive posture this year because of higher cost of capital” and are being “very careful with expenditures, which obviously impacts their decision-making.”

“But it’s really unusual for leasing to dip ahead of a downturn,” MacKay added. “Typically, leasing moves in line with GDP and job growth, that’s what you’re getting at. But what we think is happening is perhaps some of the weakness that would have been in 2024 is actually getting pulled forward this year.”

MacKay also noted that “60% to 65% of the deals we actually see getting done are still in industrial and multifamily.” She also thought that “we think we’re nearing the end of the remote work impact.”