As the big agencies start to reveal their H1 figures, one thing remains abundantly clear: 2023 has not got off to a good start.
While overall revenue falls for the first six months of the year may be in single digits for many of the big advisers, capital markets continue to drag the sector down. The sector that has for more than a decade been the shining star of many of the major firms is now the poisoned chalice, with capital markets revenue down by more than 50% at most of the major agencies.
But is the market about to change? Agency bosses are starting to talk more confidently about a return to activity and growth sooner rather than later – and it may be more than just agency chatter.
Newmark boss Barry Gosin (pictured above, left) has “never been more excited” about the firm’s future and believes that “we are on the cusp of a new market”. New Cushman & Wakefield chief executive Michelle MacKay (above, middle) is “energised”, while CBRE’s Bob Sulentic (above, right) is ready to spend billions adding new firms to the big green giant.
Whether it is real or traditional agency chutzpah, there is a definite change in tone in these most recent set of results, with most anticipating that while there are a few more bumps on the way, life could get a whole lot rosier come 2024.
Definitive change in investor sentiment
Sulentic says further interest rate rises are expected over the remainder of the year and while these will continue to put pressure on the sales and financing divisions of the business, there is an increasingly brighter light at the end of the tunnel.
“We are beginning to see signs in our own business that will eventually lead to improved performance, likely starting next year,” he says. “Our investment management team responsible for capital raising has noted a definitive change in investor sentiment in the last 90 days. Many of these investors remain cautious but are now exploring how they can take advantage of the reset in pricing as they develop their 2024 commitment plans.”
CBRE still expects a “mild recession”, he says, but is banking on recovery next year.
“We are seeing signs that people are getting ready to act, which is good news. And we think things will sort out more with the banks now and there will be debt available from them,” says Sulentic. “So, we’re feeling better about where things are going to be, but we’re probably not going to see that happen until next year.”
Newmark’s Gosin is equally confident about a strong 2024 for his business and believes that its revenue will exceed peak 2021 levels – when they nudged $3bn – once markets normalise.
Uniquely positioned to capitalise
“The complex dynamics of dramatically higher interest rates and shifting capital sources across both debt and equity requires a higher level of ingenuity and talent to provide different and creative solutions in this new world,” he says. “Given the investments we have made, we are uniquely positioned to capitalise on this changing landscape. Market dynamics have changed. The criterion for incumbent lenders is shifting, which is creating a challenging environment for borrowers. The demand and requirement for equity is increasing and the providers of equity are changing.”
For Gosin, that spells opportunity.
“As interest rates stabilise, capital markets activity will begin to rebound towards the end of the year, and we expect there will be a robust back half of 2024. The resurgence of our higher-margin capital markets business, combined with our strong leasing, recurring-revenue businesses and the investments we have made in expanding our platform will drive significant revenue and earnings growth.”
Gosin sess growth for Newmark coming through its debt advisory division, believing that the company can capitalise on the record $1.9bn of debt due to mature in the period through to 2025, with a peak next year.
“Newmark will generate dramatic growth from this countercyclical business, which partially offsets and replaces near-term declines in the sale of buildings,” he says. “Growth in distressed loans and assets will lead to other opportunities for Newmark across its service line.”
Capital markets are thawing
For “energised” and ready to “hit the ground running” MacKay, Cushman is readying itself for the next leg of its growth strategy – once $130m of costs are cut. On the prospect of “green shoots”, she says the firm is feeling “really good”.
“We are encouraged by the building pipeline,” she says. “It’s still too early to call an inflection point. There has been a lot of focus on capital markets and recovery, and capital markets in particular, so we believe it’s a question of when, not if. We all know capital markets performance is highly correlated to interest rates and markets in general and there will probably be one more rate move followed by a period of no change and then cuts. So, we’re directionally feeling particularly good at this moment.”
She adds: “There is going to be a thawing of capital markets late this year and into early next year and at that point, then it is a discussion of how the dam breaks if you will. If it breaks in small pieces or breaks all at once.”
But while the future-gazers are hopeful that 2024 will spell a new beginning for the real estate market, 2023 will not. The big agents do not see a “meaningful recovery” in the final months of this year, just a sequential improvement and certainly no promise of any fast recovery.
To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews
