The biggest agencies are nursing a near-$1.7bn (£1.4bn) drop in revenue from their capital markets work as deals dry up.
Across the five agencies to have reported fourth-quarter results in recent weeks, combined capital markets revenue is $1.68bn lower than for the final three months of 2021.
For many, the falls are as bad as they were during the Covid-19 pandemic. The drop underlines a dearth of investment deals as economies around the world face the impact of rising inflation and interest rates, and as dealmakers grapple with rising debt costs and shifting valuations.
Those factors have all led to deals being cancelled, said Colliers chief executive Jay Hennick.
“We think there is a big pent-up demand of real estate assets that want to trade but they still need a period of time to stabilise on both sides [of the deal],” Hennick said as Colliers announced a 45% fall in Q4 capital markets revenue to $246.3m. The agency expects capital markets activity to be down by 20% to 40% during the first half of 2023.
“I think higher quality assets will trade sooner than lesser quality assets,” Hennick added. “But there is a lot of discovery happening. It’s not just price discovery, it’s clients looking at portfolios or ways to acquire two or three assets from a seller who might be under a little bit of financial pressure.”
Agencies are braced for more near-term pain and are adjusting their guidance accordingly. CBRE has said its goal of achieving core earnings per share of between $8 and $9 by the end of 2025 is likely to be missed by a year to 18 months “due to the real estate transaction downturn”.
CBRE’s capital markets revenue was $714m, down by 46%, in line with the agency’s expectations and, according to its top team, “accentuated” by a particularly strong performance a year earlier.
That drop echoed the agency’s Q2 2020 performance, when divisional revenue fell by 44% as deals markets froze during the early months of the Covid-19 pandemic.
JLL posted a 38% drop at $607.9m. Agency bosses are hoping for a turnaround during the latter half of this year.
“Our view continues to be that we are going to have a relatively mild recession, that we are going to be out of it toward the end of the year, early next year, and that the capital markets are going to come back in the back half of the year,” said CBRE chief executive Bob Sulentic.
At Cushman & Wakefield, capital markets revenue dropped by 52% or $303m year-on-year to $268m over the three months to 31 December. That scale of decline was last seen during the second quarter of 2020.
Cushman chief financial officer Neil Johnston said: “In brokerage, we anticipate the environment to remain challenging during the first half of 2023, with brokerage declines similar to Q4 of 2022.”
Chief executive John Forrester sounded a note of optimism while discussing the outlook with analysts.
“What we have seen so far this year across all markets, all sectors and all geographies from capital markets is actually a remarkable level of positivity from investors,” he said. “There is a very significant amount of dry powder.
“There seems to be a very clear view that as the fundamentals become transparent there will be high levels of activity in both sales and acquisitions.”
Forrester continued: “What we are seeing on a client-by-client conversation basis – I have been around many of the largest investors in the world in the last couple of months – is that they remain ready to deploy and deploy on a very large scale.”
Newmark’s fourth-quarter revenue from investment sales was down by almost two-thirds at $113.5m, with debt origination revenue falling 54%.
“As we have seen with past downturns and subsequent recoveries, capital market leads the rebound,” said chief executive Barry Gosin. “Once the markets and the Fed are aligned, we expect pent up demand to drive significantly higher industry volumes.”
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