The biggest real estate agencies have seen revenue from their capital markets businesses dive over recent months as they face a downturn in deals and a shifting economic outlook.
Across the five big agencies to post third-quarter results so far – CBRE, Newmark, Colliers, JLL and Cushman & Wakefield – capital markets revenue stood at a combined $2.1bn (£1.8bn), down by 16% or $400m from the same period a year earlier.
The fall was in contrast with other business lines, where revenue rose for most of the big names.
Agency bosses are now eyeing a more protracted recovery for capital markets work than they were earlier in the year.
Cushman & Wakefield chief executive John Forrester said the agency did not expect its capital markets division to break last year’s record full-year performance, with third-quarter revenue dropping by a fifth in a “markedly different environment” to $263.2m. He added that the market “may perhaps take some time to recalibrate as the higher interest rate and inflationary environment takes its toll”, but noted the business is ahead of the same point in 2019.
At Newmark, revenue from commercial mortgage origination and investment sales – which the agency bands together as capital markets – dropped by close to 30% year-on-year to $222.3m. The company has lowered full-year guidance “primarily due to the anticipated year-on-year decline in industry-wide capital markets transactions in the second half of 2022”.
Subdued business
Newmark chief executive Barry Gosin said “confusion with respect to seller and buyer expectations” means the team now predicts “a decline in volumes to continue” and for business to remain subdued “well into next year”.
“I don’t think anybody has the answer completely,” Gosin told analysts. “I think it’s subject to getting arms around inflation. We have an election coming up [the US mid-terms], which is driving that aggressive attack on inflation – just how aggressive it gets no one could determine. Interest rates drive transactional volume. That’s just the nature of our business.”
The team at JLL said a “rapid slowdown” in the capital markets business – where quarterly revenue of $595.2m was 12.5% lower then a year ago – would likely worsen over the remainder of the year.
At CBRE, Emma Giamartino, global group president, chief financial officer and chief investment officer, noted capital markets weakness “emerged immediately following Labor Day, which historically has been a time of heightened sales activity”, adding that lower full-year guidance for the agency “assumes that the capital markets remain under pressure”. Capital markets revenue at the company fell by 14.5% in the third quarter to $730.9m.
“Things have materially changed [from the last quarter],” Giamartino said. “We have seen that impacting our capital markets business directly. We are getting hit harder and faster than we were expecting 90 days ago, and we are expecting the recession to impact our business for longer than we did 90 days ago.”
“Tonnes of capital”
Colliers’ Jay Hennick also noted that capital markets activity “just sort of fell off” following Labor Day in early September. The firm’s revenue from that business dropped by 11% to $275.7m over the quarter.
“But make no mistake, there are tonnes of buyers in the marketplace with capital to deploy, and there are tonnes of sellers in the market with capital to deploy,” the chief executive added. “The difference is that there is this gap between expectation of value and the ability to buy assets given the current interest rate environment, but also capital availability generally.
“So there is a huge amount of pent-up demand that we see will start to break over time. It will be impacted in some proportion to interest rates changing direction and some proportion to availability of capital, in some proportion to existing owners having debt coming due, and they are going to have to deal with that debt one way or the other. So there are a lot of things that can happen that can really change the trending as we go.”
To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews
