A slowdown in investment sales brought on by rising interest rates appears to be eating into CBRE’s income.
The commercial brokerage’s net income plummeted by 88 percent year-over-year in the fourth quarter, during which the firm experienced a “slightly larger-than-expected decline in transactional revenue,” the company disclosed in its earnings report Thursday.
CBRE’s net income in 2022 fell by 23 percent.
The drop in profit came despite only a 4 percent decline in the brokerage’s quarterly revenue, to $8.2 billion, from the fourth quarter a year ago, driven largely by capital markets and leasing revenue slowing down. The company’s advisory services arm, which houses both capital markets and leasing, saw revenue decrease by 21 percent.
Global sales revenue fell by nearly 47 percent across all major property types, while the Americas saw capital markets revenue drop by 53 percent in the fourth quarter, which the firm blamed on a “highly constrained capital environment.”
Global mortgage origination revenue declined by 42 percent as most debt capital sources were dormant.
Global leasing revenue decreased by 7 percent across most major property types, but particularly within the office market, which was 14 percent lower than in the previous year.
Transactions are expected to remain “subdued” during the first half of the year, but deals should pick back up after that, the brokerage predicted. However, property sales are forecast to remain slow this year.
“There’s a lot of capital that’s been on the sidelines wanting to acquire assets,” CBRE CEO Bob Sulentic said on the company’s earnings call. “There’s a lot of asset owners that have wanted to sell assets. We’re starting to see spreads come in a little bit now and the buyers get a little more aggressive.”
Multifamily and industrial assets are likely to lead the way, Sulentic said, while offices “will remain the most-challenged property type as we do not expect occupancy to come close to pre-pandemic levels in the short-term.”
Leasing revenue is also likely to remain tepid until the back half of this year, as Sulentic said the downturn in demand for office space “is going to sustain for the time being.” The share of CBRE’s leasing revenue from office deals has fallen by 20 percent since 2019.
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“We haven’t seen much change over the last few months in the return to office,” Sulentic said. “We’ve built a plan for the next several years that assumes that that is going to be the case.”
Still, Sulentic expressed confidence that CBRE will emerge stronger.
“In all, 2023 will be a transition year and we feel good about where we’ll be when we get to the other side of the downturn,” Sulentic said.