Brokerage Firms Ride Leasing Comeback To Surprisingly Strong Quarter

For brokers who thrive on the daily grind of chasing deals, the past few years have been tough to say the least.

Last year, while interest rates were rising and transactions were frozen, brokerage giants reported negative cash flows and were forced to make painful budget cuts. To stem losses, many stopped hiring or laid off employees.

But the past few months have seen a seismic shift. 

Interest rate cuts have begun, a presidential election has come and gone with a real estate executive winning the White House, leasing is up, and the largest brokerage firms are riding a wave of rising revenue and deal flow.

“We are more energized than ever about where we can drive this business in the future,” Cushman & Wakefield CEO Michelle MacKay told investors Monday. 

It helps that the brokerage, alongside most of its peers, surprised analysts by crushing market predictions. Overall, Cushman & Wakefield’s report presented an earnings surprise of 15%, according to earnings forecaster Zacks Investment Research. JLL blew past expectations by a whopping 31%, while CBRE and Newmark Group surpassed forecasts by 13% and over 6%, respectively.

“From an investor standpoint, the last two to three years has been really important because the quality and more stable nature of these businesses relative to 10 to 15 years ago has become much more apparent in the last two to three years,” William Blair Analyst Stephen Sheldon told Bisnow.  “I think they've likely held up much better than investors expected.”

However, despite surging revenue, executives were cautious not to crack the champagne and throw the confetti. 

CBRE’s revenue totaled $9B in the third quarter, up 15% from the year prior, with net revenue up 20% to $5.3B. Sheldon wrote in a report that the results were “impressive across the board.”

And though CEO Bob Sulentic expressed enthusiasm for the industry, he also preached pragmatism.

“We think there'll be a steady improvement next year, but we don't think it's going to be a precipitous improvement,” Sulentic said during an Oct. 24 conference call. “Our plan doesn't anticipate a precipitous improvement.”

At JLL, revenue was $5.9B, up 15% year-over-year. Adjusted diluted earnings per share hit $3.50, up from $2.19 during the same period last year.

However, in a conference call Wednesday, JLL Chief Financial Officer Karen Brennan declined to provide any projections for what the future may hold, stating that the firm needs to see full-year numbers to understand where the baseline may be. In the meantime, she urged investors to “stay tuned.”

Cushman & Wakefield reported $2.3B in revenue in Q3, up 3% from a year prior, while leasing revenue surged 13% during the quarter, marking the largest year-over-year growth since mid-2022. JPMorgan, roused by increasing positive action from the brokerage, raised its estimates for the brokerage, according to a report provided to Bisnow. 

Still, Cushman & Wakefield CFO Neil Johnston cautioned that pandemic-caused stress on the business has not yet been alleviated. 

“We think the cycle is going to be a long one, and so we want to be very, very well prepared for it as we go through the year,” Johnston told investors.

Cushman & Wakefield’s leasing revenue grew 13%, driven by industrial and office leasing in the Americas and Asia-Pacific. Its earnings were further assisted by the company restructuring debt and selling off assets.

Newmark similarly raised revenue by 11% from last year to nearly $686M, largely attributed to an increase in retail and industrial activity. That growth allowed leasing fees to increase by 6%, Newmark CEO Barry Gosin told investors. 

The brokerage has strategically expanded the retail and industrial sections of the business over the last few years, Gosin said. But moving forward, Newmark plans to shift its focus to multifamily transactions and financing as those landlords have fallen victim to high interest rates, increased operating costs and affordability pressures. 

“We continue to have a fairly robust multifamily investment sales business. We continue to hire people as we will continue over the next year,” Gosin told investors. “We've won more market share. We capture a lot of the sales that we do for debt. Our capture rate has increased, so we're a beneficiary of that kind of business.” 

Brokerages across the board benefited from a pickup in office leasing, though Sulentic said there is no expectation for leasing to return to prepandemic levels.

The companies reported earnings around Election Day, adding to potential precariousness felt by firms. Cushman & Wakefield reported earnings the day before the election, Colliers International and Newmark hosted their calls the day of, and JLL — equipped with more clarity — released results the day after.

Wall Street has been bolstered by Donald Trump’s presidential win Wednesday, with the developer-in-chief advocating for lower interest rates, looser restrictions and a more business-friendly economy.

Many finance and Silicon Valley executives had already thrown their support behind Trump, whose victory sent stocks soaring Wednesday following Trump’s win, “which helps CRE just like other businesses,” JPMorgan noted in its report on JLL. 

The surge follows an extraordinary year for the stock market. The S&P 500 is more than 20% higher than the Wall Street consensus for 2024, according to The New York Times. The week of both the election and another interest rate cut bumped the S&P 500 closer to its 50th record this year after $20B flowed into U.S. equity funds the day of Trump’s election, according to Bloomberg.

However, CRE brokerages did not see as much gain, with some share prices dropping the hours after election results were announced.

KBW Managing Director Jade Rahmani said that the market has been sorting through itself “sector by sector,” noting that homebuilders were also down. 

“Brokerages, it's not really clear where they fit. They're not huge winners, but they're not huge losers,” ​​Rahmani said. “Stronger growth means better leasing in office and higher rents in apartments. But on the other hand, stronger growth leads to higher interest rates and that could affect cap rates in real estate, which could affect valuation, and hence, might cause a stalling in transaction volumes.” 

“Those are the mixed factors, and I think that's what the market is trying to sort out,” he added.

In its reports, JPMorgan pointed out that the 10-year Treasury yield hit its highest level since July on the day after the election, a point of concern for transaction-sensitive businesses. But by the end of the week, the index fell back to 4.29%, lower than the Friday before the election.

Any potential changes in interest rates or investor sentiment could impact the brokerage market negatively in the short term, JPMorgan warned in its review of JLL.

“It would be remiss to not focus on CRE capital markets and the risk of a pause as capital costs quickly reset a little higher. Further, with many investors having done well in CRE brokerage stocks, profit taking — and rotation into banks, at least today — is unfolding,” the report said. “We continue to be bullish on the CRE brokerage sector and rate JLL Overweight, but there may be some pause in the stocks after the strong run-up.”

Ethan Rothstein contributed reporting for this article.