Commercial Real Estate Firms Cut Costs As Profits Plunge

Commercial real estate brokerages are preparing for a rough road ahead as declines in property sales and leasing eat into their profits.

The industry’s major firms expressed optimism on earnings calls this month, assuring analysts that business will rebound in the second half of the year as interest rates stabilize and investors gain the confidence they need to start making deals again.

Until then, brokerages are left to strategize about how to weather what is likely to be a continued slowdown over the next few months. Those gameplans vary. Although none of the top commercial firms lost money in the fourth quarter, most say they plan to drastically cut expenses this year.

CBRE, which saw profits plummet 88 percent year over year in the fourth quarter, is moving forward with a $400 million cost-reduction plan it announced last fall. The firm said it cut about $80 million in expenses last quarter and will look to rein in another $300 million this year. The vast majority of that is expected to be achieved through layoffs.

After a quarter in which its profit dropped 59 percent to $175 million, JLL is eyeing $140 million in annual savings, about $125 million of which it expects to reach this year. The cuts will largely be made through layoffs, but the firm did not say how many have lost or will lose their jobs. JLL began reducing its workforce last year, when severance and other employment-related costs more than tripled to $44.5 million compared to 2021.

“We have taken steps to drive operational efficiencies across our business and reduce our cost base,” CEO Christian Ulbrich said on an earnings call this week. “The cost actions we have taken to date occur across business segments and have been focused on non-revenue generating roles.”

Cushman & Wakefield also joined the cost-cutting parade after the brokerage’s profit tumbled 80 percent to $29.8 million last quarter. The firm hopes to save $90 million this year, primarily through permanent cuts. The company didn’t name specifics, saying only that the reductions would span “all costs and all geographies.”

Like at CBRE and JLL, layoffs seem to be one of those avenues. The company’s severance-related costs ticked up 16 percent in the fourth quarter, and CFO Neil Johnston said the firm identified cost-cutting measures late last year and has already begun implementing them. Still, Johnston said the cuts “will not completely offset” an anticipated decline in revenue this year.

“We believe it’s important to maintain a strong position to grow share in the recovery,” he added.

Colliers, which saw its net income drop 38 percent to $62 million in the fourth quarter, said it expects to “maintain disciplined cost control … with tight management of discretionary expenses.”

“We’re doing our best to manage costs,” CFO Christian Mayer said. “We have highly-skilled operators in the field who have done this before. Three years ago, we lived through the pandemic, and we took a very disciplined approach to cost management. We’re doing the same in this situation.”

Newmark appears to be something of an outlier. Despite its fourth-quarter profit tanking by 93 percent to just $9.3 million, the firm is seizing an opportunity to bolster its agent roster in a market downturn, poaching the nation’s top investment sales team, Doug Harmon and Adam Spies, from Cushman & Wakefield. Newmark sees itself as a buyer, aiming to expand this year by picking up companies with reduced valuations.

“The fundamental foundation of our business is built around talent,” CEO Barry Gosin said. “The best talent in every sector, every vertical, every geography. The more talent that we bring on board, the more we elevate our brand, the more top professionals want to be here. It helps us everywhere.”