Cushman & Wakefield joined its commercial real estate brokerage rivals in reporting cost cuts and reduced global deal activity for the third quarter — and warning revenue will slow into next year.
The brokerage, based in Chicago, followed CBRE and JLL, New York-based Newmark and Toronto-based Colliers in posting sharp declines in fee and revenue from investment sales and other capital markets transactions even as leasing commissions maintained their strength.
Still, while revenue from fees and commissions in the quarter ended Sept. 30 rose 8% to $1.8 billion over the same time in 2021, the weakening economy will be a financial drag on the company and the broader real estate industry in coming quarters, CEO John Forrester said in an earnings presentation on Thursday. Capital markets revenue fell 20% year-over-year to $263 million in the quarter.
Similar to outlooks reported by its rivals, Cushman expects revenue to decline through the end of 2022 and into next year as a result of slowing global transaction activity amid increasing economic uncertainty. Rising interest rates, relatively high inflation and concerns of a recession have had an effect on some third-quarter earnings for the industry.
"While most of Cushman’s service lines have performed well this year, the company is feeling the financial impact of macroeconomic pressure in specific areas," Forrester said.
He cited weakness across its greater China operations from extended pandemic lockdowns, global currency fluctuations caused by the stronger U.S. dollar and declines in lending and investment sales activity.
Property Management Benefit
Cushman's overall revenue growth reflected strong leasing activity and income from property and facilities management, offsetting the declines in capital markets activity, Chief Financial Officer Neil Johnston said.
The company reported a 4% increase in operating costs and other expenses over the prior year, mostly due to higher salaries and commissions paid to U.S. brokers, Johnston said.
Cushman also took an expense hit thanks to unrealized losses on its investment in shared-office provider WeWork.
Forrester said the company has been embarking on a cost management initiative that has sliced $250 million in expenses over the past three years, minimizing its exposure to deeper cuts such as those projected by CBRE. He said $30 million of the $250 million in cuts came this year.
"There’s nothing I’m seeing in the cost plans being put out by our peers that isn’t already being fully formed within Cushman & Wakefield," Forrester said.
The brokerage reported revenue of $2.5 billion for the quarter, up 8% from the year-earlier period. Net income declined 65% to $23. million from $68.7 million in the prior year.