Real Estate Brokerages Expect Leasing, Sales to Moderate This Year

Real Estate Brokerages Expect Leasing, Sales to Moderate This Year

Shared Office Providers May Drive Leasing Activity as Investment Sales Are Seen Slowing


Strong office demand in San Francisco and other large U.S. markets fueled robust commercial brokerage results in 2018. Photo: CoStar
The world’s largest publicly traded commercial property services firms, coming off one of their strongest years for leasing and sales, are forecasting growth in those sectors will ease in 2019 as the global economic expansion slows.

CBRE Group Inc., Jones Lang LaSalle Inc., Newmark Group and Colliers International Group Inc. all posted increases in leasing revenue, some as high as 25 percent, in the fourth quarter over the year-earlier quarter as they did more business with coworking companies such as WeWork and major brokered leases firms such as BMO Financial, Deutsche Financial Services and online entertainment provider Netflix. Overall revenue among the brokerages grew at a double-digit annual rate in 2018 as it has for the past several years for most of the firms, underscoring the stamina of the almost decade-long real estate market expansion.

But it comes as the global economy is expected to grow at a healthy but moderately slower pace than in recent years, while international money flows are solid in spite of tensions with trade and geopolitics. Companies are anticipating growth in leasing, sales and overall revenue to flatten or decline slightly in 2019.

“The global outlook is becoming increasingly difficult to predict,” JLL Chief Executive Christian Ulbrich told analysts during an earnings call. “There were some signs in the fourth quarter that demand is softening. At the same time, a still-growing rate of capital continues to target real estate, and occupier fundamentals remain robust.”

The firms aren’t predicting a doom-and-gloom scenario, but they are expecting that the explosive growth the real estate industry has experienced in the past eight to 10 years may finally have peaked and be coming back down to earth.

“While we remain mindful of potential macro challenges and the length of the current economic expansion, this continues to be a supportive environment for our business,” Sulentic said.

The largest global real estate firm, CBRE Group, posted leasing revenue growth of 22 percent while Jones Lang LaSalle, the world’s second-largest real estate service providers, posted leasing revenue growth of 25 percent in the fourth quarter of 2018 from the year-earlier period, a boost that both companies attributed to deals with WeWork and other coworking companies.

CBRE reported a 7 percent increase in investment sales revenues for the full year of 2018, while sales declined 12 percent for JLL, which said it expects investment volume to decline an additional 5 percent to 10 percent this year.

Capital markets growth is expected to decline in 2019, Sulentic said, adding, “we think it will be kind of a flattish market.”

The Los Angeles-based brokerage CBRE posted better-than-expected profits for 2018, with overall revenue growth clocking in at 15 percent and growth reaching double digits across all regions, from Asia to the Americas.

“As always, transaction volumes are difficult to forecast, however, we expect solid revenue growth in our transaction businesses in 2019 supported by market share gains,” Sulentic said.

JLL, based in Chicago, ended 2018 on a high note with a 13 percent overall increase in revenue from leasing, property and facilities management, and project and development commissions and fees in the fourth quarter.

Ulbrich expects investment sales activity to slow by 5 percent to 10 percent in 2019, which he said “still represents a healthy level of activity consistent with the last few years.”

While new office buildings coming onto the market could cause slightly higher vacancy rates, the added supply will also “provide a broader range of choices for occupiers and thereby support another year of strong leasing activity at levels similar to 2018,” Ulbrich said.

Across the Board

The nation’s other top real estate companies are experiencing similar demand.

Newmark Group, the parent company of Newmark Knight Frank, expects overall commercial leasing and investment sales to be flat or only slightly higher this year, Chief Executive Barry Gosin told investors on an earnings call. The company reported a 25 percent revenue increase in the fourth quarter from the prior year to just more than $2 billion. The company, which went public in December 2017 and spun off from parent BGC Partners on Nov. 30, expects revenue in the range of $2.2 billion to $2.3 billion in 2019.

“Newmark continued to significantly outpace the industry and capture market share, driven by robust quarterly results across virtually all of our business lines, and by a 20 percent year-over-year quarterly improvement in revenue per producer,” Gosin said, adding that nearly 90 percent of Newmark’s 2018 revenue growth was attributable to the contributions of leading industry brokers and agents recruited by the company in recent years.

Colliers International’s revenues increased 16 percent in 2018, while adjusted earnings per share increased a strong 29 percent over the prior year. Leasing revenue rose 20 percent in 2018 over the prior year, with both Canadian and U.S. operations generating strong mid-teens percentage growth internally.

While predicting revenue growth to slow to a “high single-digit” rate this year, Colliers International Chairman and Chief Executive Jay Hennick described 2018 as a “defining year for Colliers” as the Toronto-based company acquired a record 12 companies, highlighted by its July acquisition of Harrison Street Real Estate Capital, which gave Colliers $28 billion in assets under management at the end of the year.

To weather any possible slow-down coming, the company is pivoting to focus more on recurring revenue streams such as property management. With the addition of investment management fees from Harrison Street, about three-quarters of Colliers International’s earnings now comes from recurring revenue streams, Hennick said.

“We’re expecting significant fundraising and investment activity in the first half of the year based on pipelines currently in place, which will translate into recurring management fee revenue and a solid momentum continuing through 2019,” Hennick said.

Cushman & Wakefield, the third-largest commercial brokerage by market value after going public last summer, is scheduled to report results on Feb. 27.