Agents slash forecasts as downturn hits ‘hard and fast’

Some of the biggest real estate agencies have sounded the alarm over a worsening economic outlook, with one top executive saying the market is “getting hit harder and faster” than they were expecting last quarter. Third-quarter results from leading firms including CBRE, Colliers, JLL and Newmark showed the effect of macroeconomic shifts on various business lines, with bosses acknowledging that a downturn could now last for longer than previously thought. Reporting a 16% fall in third-quarter revenue and lowered outlooks for full-year revenue and EBITDA, Newmark chief executive Barry Gosin said: “The rapid rise of global interest rates has materially impacted transaction volumes… This environment has created confusion with respect to seller and buyer expectations regarding market pricing.  “We expect a decline in volumes to continue until interest rates and cap rates stabilise. We anticipate lower volumes well into next year.” Growth opportunity Colliers has also lowered its outlook for its full-year adjusted EBITDA margin and earnings per share growth, while CBRE has lowered its EPS growth expectations on the back of currency movements.   Some firms are mapping out ways to take advantage of market disruption. Colliers chief executive Jay Hennick told analysts the agency has “virtually unlimited growth opportunities and a clear history of being able to capitalise, especially in times of dislocation as we are seeing now”. He added: “Recruiting is top of mind for us moreso now, we think, while others are running for cover… There’s a global initiative around recruiting, filling specific gaps, particularly in areas where our investment management operations have strength and infrastructure, and other recession-proof or recession-resistant asset classes. So we’re trying to strategically up our game in terms of the expertise in those asset class areas.” Colliers’ chief financial officer, Christian Mayer, said the agency sees no reason for a “formal cost cutting” initiative “just now”, but that the budget process is “currently underway”. “Certainly, cost management is top of mind for that as we prepare for 2023 with varying levels of transaction revenues that could transpire over the next 12 months,” he said. Saving pennies While Hennick and colleagues look to add strength to the bench, some rivals will be cutting back. CBRE has announced a $400m (£347m) cost-cutting initiative, with president and chief executive Bob Sulentic noting “a sharp deterioration in the macro environment, particularly with regard to capital availability for transactions”. Emma Giamartino, CBRE’s global group president, chief financial officer and chief investment officer, said the capital markets business was “getting hit harder and faster than we were expecting 90 days ago and we’re expecting the recession to impact our business for longer than we did 90 days ago”. She added: “Looking to next year, we do expect the capital markets to come back likely in the second half of the year. But that return is going to be more muted than what we initially expected [on the company’s earnings call] in Q2.” Across the business, Giamartino said, the management team is targeting $400m of cost reductions, some $300m of which “will be permanent in nature, with the vast majority coming from headcount reductions”.  The remainder will be from reductions in travel, entertainment, promotion and marketing spending. Those cuts will be in addition to “naturally flexible cost reductions” such as discretionary bonuses, incentive compensation, profit sharing and commissions.  Some $175m of the cuts will be completed by the end of the year, with most of the remainder undertaken by the end of March 2023. Asked by an analyst whether the $400m in cuts could see the company “get into the muscle” and risk a loss of market share, Sulentic said the target was “the number we believe we can cut, without impacting our ability to grow the business and serve our clients in the future”. He added: “A lot of work went into, from the grassroots level up and from top down, identify[ing] that $400m number… And we don’t think that that $400m will create problems for our business at all.” Inevitable fall Agencies’ Q3 results come as the latest Emerging Trends in Real Estate survey by the Urban Land Institute and PwC UK finds real estate industry leaders in Europe predict a tough year ahead with reduced finance, declining values and the threat of recession. Some 71% of the 900 industry figures surveyed believe Europe will be into recession before the end of 2022, with a fall in values seen as inevitable and expectations around the availability of equity and debt sink to their lowest level since the global financial crisis. View on-demand agent rankings>> To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews Image © TOLGA AKMEN/EPA-EFE/Shutterstock