Marcus & Millichap CEO Hessam Nadji said market disruptions since the COVID-19 pandemic have upended both the real estate company's sales and its way of recruiting and training new brokers. As a result, the firm has joined major brokerages in seeking selective cost cuts until things return to normal.

Investment property sales and financing fell to low levels early in the pandemic before starting to recover in 2021 and 2022 — only to take another dive last year as higher interest rates caused sales to dry up, Nadji said. That lower demand has resulted in higher turnover, especially for newer brokers who decide to leave rather than stick around for the typical year or two to reach peak sales after they are trained, making it harder to expand its sales force in recent years.

“The last three- to four-year period has provided nothing resembling a typical market environment, in which we train people, mentor people and they learn the fundamentals of brokerage,” Nadji said during the Calabasas, California-based company’s most recent earnings call. “This market disruption is the primary reason that skill sets aren't developing in a way that we're used to seeing."

Marcus & Millichap's decline in brokerage commissions from sales contributed to its fourth consecutive quarterly loss, even after the brokerage cut focused making cuts to selling, administrative and other costs by 5% from the year-prior period to $69 million. Precision cost trimming has also been a major priority for the company's larger publicly traded rivals, CBRE, JLL, Cushman & Wakefield, Newmark and Toronto-based Colliers.

Those firms have reduced expenses this year, including through reducing some staff, as hopes fade that the Federal Reserve will significantly lower interest rates any time soon. Pressure to shrink expenses in less important areas is growing along with headcounts as big brokerages selectively invest in talent and acquisitions to generate revenue by providing management and consultative services while awaiting an eventual deals rebound.

“There’s a lot of what I would call 'quiet cutting' going on right now,” Robert Shibuya, CEO of Dallas-based real estate advisory firm Mohr Partners, said in an interview. "I know that all of the big brokerages are still cutting because their people have been calling me for work."

For instance, at JLL, the world's second-largest brokerage, benefits from cost cuts coupled with growth in leasing and "resilient" businesses such as workplace and property management helped drive a $66.1 million profit in the quarter compared with a $9.2 million loss in the year-earlier period, CFO Karen Brennan said during the Chicago-based company's earnings call.

"As we strengthen our service and product offerings, we will selectively add people and capabilities, both organically and through very targeted" mergers and acquisitions, CEO Christian Ulbrich told investors.

Other industry executives and analysts said brokerages will keep finding ways to reduce costs through layoffs and efficiency measures that were put in place during the deal downturn to help protect earnings.

Cushman & Wakefield, the brokerage that reported a 29% increase in earnings over the prior-year quarter mainly from lower expenses and higher leasing revenue, has delivered on its cost-savings plans, Morningstar analyst Suryansh Sharma said in an email.

"Keeping a rein on expenses is essential, given the current macroeconomic challenges," Sharma said, adding that Cushman management has projected that cost and efficiency initiatives will mostly offset an increase in inflation costs this year.

While brokerage layoffs probably won't match levels of the past two years when the businesses had shed hundreds of jobs, CBRE and other companies are likely to keep reducing their employee counts in certain areas to further cut corporate costs, Shibuya said.

Some of those looking for jobs have been either administrative personnel or in services provided by brokerages to clients such as tracking and optimizing leases, managing properties and other building services such as janitorial, Shibuya said. Cushman & Wakefield last year said it was cutting over 700 employees in the San Francisco Bay Area’s Santa Clara and San Mateo counties after it lost a contract to provide services at Google-owned properties.

Some companies are starting to carry out functions they once outsourced as one way of reducing costs, Shibuya added.

"Everyone's being asked to do more with less," he added. "Every brokerage anticipates that transactions, which are still as much as 70% of their revenue, won’t be recovering anytime soon."

Despite rounds of layoffs, the five largest global real estate services firms ranked by revenue, CBRE, JLL, Cushman & Wakefield, Colliers and Newmark, have steadily increased their annual employee counts over the years as they grow by acquiring companies across the globe that focus on parts of the business not as reliant on transactions volume. These include project management, investment management, technology and engineering services.

For example, Newmark expanded its workforce by 10.5% to 7,400 professionals at 170 offices as of the end of 2023, compared with the prior year, according to filings. Analysts say the firms can figure out where to cut when costs emerge as a bigger issue because of changing market conditions.

CBRE increased its worldwide employee count to more than 130,000 at the end of last year, up 30% from 100,000 employees at the end of 2020. The latest total includes employees from London-based Turner & Townsend that have joined CBRE since its $1.3 billion acquisition of the infrastructure and construction manager in 2021.

The trend mirrors double-digit annual growth in employment for U.S. real estate brokers last year as firms look to add in key revenue-generating positions that went empty as some inexperienced brokers gave up in the market tumult following the pandemic and the higher interest rates instated to quell inflation. The estimated number of brokers increased nearly 13% to 51,350 in May 2023 from the year-earlier period, according to Department of Labor data released last month, providing incentive for firms to look to cut existing staff to reduce costs.

Demand for certain commercial real estate positions, especially those in property management, is expected to stay strong this year, potentially pressuring real estate companies to offer higher pay for those positions, according to a recent national compensation study.

That comes with dealmaking tough for brokers, as listings can take longer to sell and deals fall out of contract due to financing issues or repricing, Nadji said.

"This is time consuming for our sales force, as you can imagine, and limits their bandwidth to engage in new business development, " he added.