Brokerage Executives Charge Into Second Half of Year Confident They Can Weather Slowing Deals

The largest publicly traded commercial real estate services companies are pushing confidently into the second half of 2022, unified in stating that they’re well positioned to weather what one analyst described as a “fundamental shift” as the economy slows and leasing, property sales and financing activity decline.

Executives at CBRE Group, JLL, Cushman & Wakefield, Colliers International and Newmark reported that strong deal activity carried over into July after record or near-record results in the first half of 2022.

The brokerages have been telling investors in earnings calls over the past week that they’re as confident as they were three months ago that they will surpass last year’s results for the full year despite what by many accounts is expected to be a slowing environment for commercial real estate in the final months of the year. It comes as a surprisingly strong jobs report on Friday highlighted the unpredictable nature of the economy these days.

Their confidence is based on steps taken to diversify by cultivating new business lines such as property and project management, making the companies less reliant on commissions and other income that can dry up when companies pull back on buying and leasing property, said Robert Shibuya, CEO of Mohr Partners, a Dallas-based firm that provides portfolio management and other services to tenants and occupiers.

“Most of the big firms have their debt and leverage under control, and if you compare the revenue of the blue-chip firms like CBRE and JLL now versus 2008, they’re much more diversified,” Shibuya told CoStar News. “They have a lot more sustainable and recurring revenue because of their growth in facilities management and other service lines that are less cyclical.”

Morgan Stanley stock analysts that follow the brokerage industry projected “a fundamental shift on commercial real estate,” in the second half of the year as income from property sales, financing and leasing decline amid a pullback in deal activity and rising interest rates that add to borrowing costs.


“We see signs of a meaningful slowdown given rising interest rates and economic uncertainty,” analysts Richard Hill and Ronald Kamdem said in a recent research note previewing brokerage earnings.

While macroeconomic conditions remain top of mind for CEOs, they “appear not to have created issues for the [brokerage] business quite yet,” Anthony Paolone, an equity analyst with JP Morgan who tracks the publicly traded brokerage and other real estate companies, said in a research note.

Although CEOs agreed that overall transaction activity will slow in the coming months, the executives differed in their assessment of the relative strength in specific areas such as the office market.

Cushman & Wakefield and CBRE executives reported increased strength in the office sector at midyear as more businesses made decisions about their real estate footprint. Brokerages JLL, the second-largest by revenue, and Newmark countered that many companies are taking more time and in some cases are pushing back decisions to finish office sales or leases.

“Office has been stressed in part because of the conversation and the confusion about what occupancy is going to look like, what hybrid is going to look like,” Newmark CEO Barry Gosin told investors. “But the reality is that CEOs are committed to the office, and companies have to be in the office at some point.”

Executives said the slowdown in capital markets, including property sales and financing, is probably a temporary condition.


“Once investors gain comfort with the future path of interest rates, we expect this capital to drive an acceleration in capital markets activity,” JLL CEO Christian Ulbrich told analysts during the company’s earnings call, adding that there’s a significant amount of capital yet to be deployed into commercial real estate.

Executives at investment property brokerage Marcus & Millichap told analysts that the eagerness of many investors to acquire property as a hedge against inflation should drive sales in the coming months.

That’s even as the prospect of further interest rate hikes by the Federal Reserve will probably cause real estate investors and lenders to pull back.

Rising inflation often enables landlords to increase rents at a rate they hope will be higher than increases in operating costs, particularly for properties with short-term leases, Joseph Rubin, a real estate attorney for the law firm of EisnerAmper in New York, told CoStar News in an email.

“But the sword cuts both ways because the market’s response to inflation has been significantly higher interest rates, through the Fed’s aggressive remedies and the market’s anticipation of further rate hikes,” Rubin said.

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