CushWake to cut costs as profit plunges 80%

Cushman & Wakefield is joining the cost-cutting parade.

The commercial brokerage Thursday reported an 80 percent drop in fourth-quarter profits from a year ago, to $29.8 million, and said it will trim expenses as it grapples with a downturn in transaction revenue.

The brokerage is hoping to save $90 million this year through temporary and permanent cuts, the firm disclosed in its earnings report.

The majority of cuts will be permanent, but the company wouldn’t provide details on the effort — saying only that it would span “all costs and all geographies.”

“So rather than just going in and by just doing temporary cuts or randomly taking up costs, we’ve been very, very focused to make sure that the business stays strong and we continue to drive our efficiency,” Cushman & Wakefield’s CFO Neil Johnston said.

Expense-slashing has become commonplace for public and private companies since the Federal Reserve began pushing up interest rates and investors started demanding firms cut down on spending.

Johnston said the brokerage identified cost-cutting measures late last year and has “already begun executing on these initiatives.”

“We expect these cost savings to more than offset any inflation in our semi-variable and fixed cost base,” he said. “However, they will not completely offset the temporary margin contraction from the anticipated brokerage revenue decline, as we believe it’s important to maintain a strong position to grow share in the recovery.”

Layoffs appear to be one way the firm is looking to save money. The company’s severance-related costs increased year-over-year by 16 percent in the fourth quarter, according to its earnings report.

Cushman’s cost-reduction strategy comes as a dropoff in capital markets and leasing revenue sapped its profits in the final three months of the year. The firm saw net income plummet by 80 percent and revenue fall by 8 percent largely because of lower brokerage activity, particularly in capital markets.

Capital markets revenue dropped by 53 percent and leasing revenue declined by 13 percent, which the brokerage said was representative of a “less constructive macroeconomic environment” caused by higher interest rates and fewer transactions.

For the year, the company’s profit decreased by 21 percent and capital markets revenue fell by 12 percent. But leasing revenue was up 13 percent last year thanks to continued industrial strength and an improvement in the office market during the first nine months, according to the firm. Overall revenue rose by 8 percent.

Despite the downturn in brokerage activity, that segment is “very light cost” and might not be the most ripe for savings, Cushman & Wakefield’s CEO John Forrester said.

“If you are going to drive very, very substantial cost savings to try to cover all the decrement of revenue falls in transactions, you’d actually have to cut hard into the infrastructure that’s driving the growth on the services side,” Forrester said. “So the key for us is to ensure that we focus on stripping out inflation that’s coming through from our own service suppliers and in the work that we do and allow ourselves to maintain a world-class workforce.”

The brokerage expects investment sales and leasing revenue to remain slow in the first half of 2023, but to improve as the year progresses. Forrester said a lot of capital is ready to be deployed but will largely remain on the sidelines until investors have more clarity.