Colliers executives are expecting revenue to rise as much as 10% in 2024 as deals pick up after years of slowed commercial real estate demand caused by economic uncertainty and the pandemic.
The Toronto-based brokerage is looking to build on a 1% gain in revenue in the fourth quarter of 2023. It's the first publicly traded commercial property brokerage to report its year-end financial results, providing an indication of what may come as rivals announce their own outcomes in the coming weeks.
Colliers' rosier outlook, calling for a 5% to 10% revenue increase this year, would be a turnaround from its 3% decline in total sales to $4.3 billion for 2023, executives said during a Thursday earnings call with analysts.
“We expect a return to higher transaction velocity in the latter part of this year as interest rates and credit conditions hopefully stabilize,” reversing industrywide declines in leasing and capital markets activity last year, CEO Jay Hennick told investors during the call.
Colliers, the fourth-largest brokerage by revenue, is scheduled to be followed next week in reporting earnings for the past quarter and full year by CBRE, the world's biggest commercial brokerage and a bellwether for the industry.
Revenue at Colliers reached $1.2 billion in the fourth quarter of 2023, with growth coming from non-transaction services including property and facility management, engineering, investment management and consulting.
Non-transaction revenue increased 12% to just over $580 million and investment management income rose 6.5% to $129 million in the fourth quarter from a year earlier, helping to offset a 5.2% decrease in leasing income to about $318 million and a 16% drop in capital markets revenue to just over $207 million.
Gradual Return
Colliers is seeing signs that real estate sales and financing are poised to start slowly recovering after 18 months of disruptions that were caused mainly by higher borrowing costs linked to interest rate increases by the Federal Reserve Bank, CEO of Real Estate Services Chris McLernon told investors.
“We're starting to see some optimism and sentiment rising,” McLernon said. “Clients are shifting from having discussions to making decisions, as there is a clear outlook to interest rates. So we're seeing assets come to market with more realistic valuations as well.”
Executives expect deal activity to stay muted in the first half of the year before activity picks up as investors and businesses regain confidence to buy, sell and lease commercial property.
"What we're seeing, I think, going forward is a gradual return and then picking up velocity in the second half of the year," McLernon added.
Logistics and other industrial properties remain top of mind for investors based on the growth of e-commerce and the reshoring of manufacturing to the United States from Asia and other regions, according to McLernon.
“There is demand around the world for that product,” said McLernon, who also cited the strength of student and senior housing due to strong demographics and a housing shortage in many regions.
Colliers and other commercial property brokerages said last fall they are looking for capital markets and leasing activity to start a tentative recovery in 2024.
Cushman & Wakefield, the third-largest brokerage by revenue, is slated to report earnings on Feb. 20, followed by Newmark on Feb. 22 and JLL, the second-largest by revenue, on Feb. 27.