Colliers Maintains Rosy Outlook Despite Expected Capital Markets Slowdown Of Up To 40%

Revenue at Colliers took a hit at the end of last year as the economy descended into turmoil, and while rockiness is expected to continue, executives say strong returns from other areas of the business should ultimately position the company for growth in 2023.

The global firm ended 2022 with $4.6B in revenue, up 9% from the year prior, driven mostly by gains in its investment management and outsourcing and advisory sectors. 

That figure would have been even higher had it not been for a significant slowdown in capital allocations by investors across most real estate assets. That resulted in a Q4 revenue decline of 9%, the company reported.

Even so, the firm’s earnings before interest, taxes, depreciation and amortization totaled $203M, up 6% year-over-year.

“As expected, interest rate volatility and challenging debt markets impacted capital markets in our seasonally strongest quarter,” Chairman and CEO Jay Hennick said during a Thursday earnings call. “We expect this to continue through the first half of 2023.”

The firm predicts capital markets activity to be down between 20% and 40% during the first half of this year. Transactions have been canceled, Hennick said, and trading on large assets has essentially come to a standstill.

Still, he said pent-up demand for real estate could unlock transaction volume later in the year as conditions stabilize. 

“Higher-quality assets will trade sooner than lesser-quality assets,” Hennick said. “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.”

Colliers is active in three geographies, but the biggest pain point for the firm at the end of 2022 was the Americas, where Q4 revenue declined by 16% to $679M.

The region experienced unprecedented success at the end of 2021, creating an unusually large year-over-year variance, Chief Financial Officer Christian Mayer said.

Colliers was able to widen margins in the Americas through lower-than-average commission levels, less incentive compensation and a reduction in discretionary costs, but Mayer said he expects margins to compress in tandem with a decline in capital markets revenue.

“We have highly skilled operators in the field that have done this before,” he said. “Three years ago we lived through the pandemic, and we took a very disciplined approach to cost management, and we are doing the same in this situation.”

Despite a drop-off in capital markets, other areas improved. Leasing operations were up by 3% in Q4, driven by continuous activity in industrial and office. The company also saw significant growth in its investment management revenue, which totaled $121M, up 53% year-over-year. The company’s $1B worth of acquisitions completed in 2022, plus fees from existing assets, were behind the increase.

Colliers had $98B worth of assets under management at the end of 2022, up from $51B the year prior. Eighty-five percent of those assets are in perpetual or long-dated investment funds of 10 years or more, and 70% of those are in highly defensive asset classes.

“[This places] Colliers amongst the top global players in the alternative private capital industry,” Hennick said.

The company also raised $8B last year, and Mayer said he hopes Colliers’ strong fundraising pipeline will result in AUM growth of between 10% and 15% in 2023. 

“With our globally balanced and highly diversified business, significant recurring revenues and proven track record of capitalizing on opportunities, Colliers is stronger and more resilient than ever,” Mayer said.