EDITOR’S COMMENT Sentiment is a dangerous thing. It spreads fast and it spreads wide. And, reader advisory warning here, I’m going to help it spread here. So, if you’re feeling a bit delicate about the state of the market and the future of the economy, I’d probably stop reading right about now.
As I write this, we’ve had Q3 earnings figures from a clutch of the world’s biggest advisers – CBRE, Cushman & Wakefield and Newmark – all of which have painted less than rosy pictures of the environment in which they operate. Those green shoots that those same advisers started tentatively talking about at the end of Q2 now appear to have shrunk back into the ground, with the idea of any sort of recovery now not expected until at least mid-2024. I’m not usually a betting kind of gal, but I feel like this might get pushed again when we come to those end-of-year figures.
For those that have published their results, capital markets activity – or the lack of it – continues to drag business down. At CBRE capital markets revenue was down by 38%, at Cushman it was down by 44% and at Newmark investment sales were down by 28%.
Cumulatively those numbers are down 40-50%. Painful amounts that are leading businesses to cut costs.
CBRE said the “time had come” for further cost cuts, identifying some $150m of reductions “primarily focused on our transactional lines”. A year ago, the firm made some $400m of cost savings, primarily from job cuts.
Cushman’s new boss Michelle MacKay was less open about more potential job cuts, saying it would make sure it was “properly staffed” and that its targeted $130m of cost savings were at the appropriate level.
But how far can capital markets revenue fall before we see some sort of shake-up of the agency world? Cushman fell into the red in Q3. How many of the others will follow suit?
I wrote a few weeks ago about a need for there to be some sort of change to agency fees. That perhaps this industry was battling with itself for deals, instead of showcasing to the world the value of its advice. Fighting to win a deal, no matter the cost, is futile when the deals dry up. What do you have then?
For the big firms, they have the safety of diversity. CBRE, for example, has its global workplace solutions division to fall back on. The steady, simple and maybe slightly boring world of facilities and project management that continues to perform. It saw revenue rise by 16.6% to $5.6bn in Q3, while every other division was down by double digits.
But for those that don’t have that diversity, unless something changes – the market or the structure – life is going to be pretty rough for a pretty long time.
Regardless of whether those green shoots are starting to show or already withering, perhaps now is the time to at least be sowing some seeds. They could be the seeds of change in how the real estate advisory world is structured, or they could be the seeds of opportunity, finding the distress and coming up with an answer for it.
And we are at least seeing that. Take Trammell Crow Company’s acquisition of Candour, exclusively revealed by EG this week. With all the distress in US offices at the moment, a US company making a reasonably sized bet on an office investor/developer could be seen as a very risky investment. But, as the team tells us, the buying opportunities now are as strong as they have been since the global financial crisis. If, of course, you know what you are doing.
So perhaps the flurry of third-quarter results showing declining income, intensified cost-cutting measures, growing losses, and an extended anticipated period of poor trading actually is a green shoot. Perhaps continued distress now means bigger opportunity in the future. If you have the seeds to sow.
To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews
