CBRE To Lay Off Workers Amid $400M Cost-Reduction Plan
The world’s largest commercial real estate services firm is planning cuts to its headcount as a result of deteriorating economic conditions across the globe.
CBRE plans to reduce costs by $400M, including $300M in permanent cuts mainly related to staff reduction, according to the company's third-quarter earnings report.
CBRE Chief Financial Officer Emma Giamartino said during the company's earnings call Thursday that most of the cuts will occur by the first quarter of 2023. The Dallas-based company, which employs over 100,000 people globally, didn't say how many people would lose their jobs.
"CBRE is keenly focused on operating our business as efficiently as possible," Kris Hudson, a spokesperson for CBRE, told Bisnow in an email. "We are continuing to invest in parts of our business that offer secular growth opportunities. At the same time, we are adjusting our cost structure, including selective headcount reductions, in some parts of our business in response to the changing macroeconomic environment. We are working with the affected employees on an equitable transition."
While CBRE posted a year-over-year increase in net income to over $451M from $436.6M, global sales revenue dropped by 11% as capital became constrained in the third quarter. Sales revenue fell 16% in the Americas region. As capital sources pulled back on lending, CBRE’s global mortgage origination revenues slumped by 28%.
“Lower third quarter core earnings-per-share reflected a sharp deterioration in the macro environment, particularly with regard to capital availability for transactions,” CBRE CEO Bob Sulentic said in a statement. “In contrast with last year’s strong third quarter, the capital markets environment weakened materially after Labor Day, causing both sales and loan originations to fall sharply.”
CBRE also said it now foresees a deeper and more painful recession than it was predicting at the end of the second quarter, when it projected a mild recession that would peak in Q1 2023.
“Our position now is things have materially changed,” Giamartino said on the call. “We've seen that impacting our capital markets business directly. We are getting hit harder and faster than we were expecting 90 days ago, and we're expecting the recession to impact our business for longer than we did 90 days ago. Looking to next year, we do expect the capital markets to come back likely in the second half of the year, but that return is going to be more muted than what we initially expected when we talked to you in Q2.”
While flat during July and August, the brokerage's capital markets revenue in the Americas dropped by 43% in September, Giamartino said, with credit spreads tightening and underwriting standards becoming stricter, which “set pricing at levels that are uneconomical for borrowers.”
Sulentic said moving forward, the firm would focus on enterprise and local facility management, investment management and other “cyclically resilient advisory business lines,” which could help CBRE attract more clients as companies turn toward full-service firms.
“While economic downturns are never welcome, they present opportunities to consolidate our position as global occupiers and investors gravitate to the industry leader,” he said. "We fully intend to make the most of these opportunities."
Sulentic also said that there are plenty of buyers wanting to invest in real estate, but interest rate hikes have dampened the economics of deals. But Sulentic said he expects the Federal Reserve to reverse course on its interest rate jumps as the economy worsens, which should loosen up the sales market.
“There is a definitive, identifiable pipeline of projects across property types that want to be sold by the owners,” he said. “And there is a lot of capital out there that wants to buy, and neither of them thinks this is the right time to transact. That's what you're really seeing. We can't give an exact number of years, but it will recover considerably more rapidly than it did coming out of the financial crisis.”
