CBRE, the world’s largest commercial real estate services company, posted better-than-expected earnings as office leasing surged for a second straight quarter in a sign of potential added demand for the property type into 2025.
The upbeat fourth-quarter results from the Dallas-based company and the brokerage Colliers earlier this month provide room for optimism in the real estate industry amid questions about the direction of interest rates, inflation and potential effects of economic policies in President Donald Trump’s second term that began last month.
The firm's per-share earnings of $2.32 from October through December topped expectations, with gains in project management and property sales as well as office leasing. Net revenue rose 18%.
The news marks a shift toward growth after years of sluggish office leasing activity and property sales. Revenue from office leasing rose sharply as companies committed to larger and longer leases, with revenue rising 28% in the United States during the fourth quarter, CBRE said, following strong gains in the previous quarter.
“The durability of office leasing growth was a prominent question as recently as October when we last reported earnings,” Chief Financial Officer Emma Giamartino said during the call. “While New York led most of the office leasing recovery in 2024, other markets accelerated substantially in the fourth quarter."
She added that “gateway markets comprised of New York, San Francisco, Los Angeles, Chicago, Washington, D.C., and Boston grew approximately 30% in aggregate. Other large markets such as Dallas, Atlanta and Seattle grew even faster, and certain smaller Midwest markets including Cleveland, Pittsburgh and Minneapolis picked up considerably. This gives us confidence that office leasing will continue to increase as activity has spread broadly.”
The company's global property sales revenue increased 35% during the quarter, with that number rising to 37% in the United States.
“We expect a continued pickup in 2025,” Giamartino said. “We’re very early in the year, but in the first six weeks of the year we’re seeing 20% growth in U.S. sales activity. But we are being cautious because we don’t know what the trajectory of [interest] rates will be for the remainder of the year.”
Property management
CBRE has been working to diversify in recent years to become less reliant on its commercial brokerage business, a segment that's the world's largest. Revenue rose 16% in the fourth quarter and 12% for the year within what CBRE calls its resilient business, a segment that includes property management and valuation services.
President, CEO and chair, Bob Sulentic, said the results from various segments led to the firm's best quarter on record for core earnings and free cash flow. The firm said it has bought back more than $800 million of shares in recent months.
“Our confidence in CBRE’s future has never been higher, as evidenced by our considerable share repurchases since the end of the third quarter,” Sulentic said during a call with analysts. “Despite the strong appreciation of our shares over the last year, we believe the market is undervaluing our business relative to both its growth profile and dramatically enhanced resiliency.”
Recent moves by CBRE to diversify its business include acquiring the remaining stake it didn’t already own in flexible workspace company Industrious in an approximately $400 million deal.
The move is part of CBRE’s creation of a new business unit, dubbed Buildings Operations & Experience, that combines Industrious with CBRE’s property and facilities management business, CoStar News reported in January.
CBRE also is establishing another new business called Project Management, combining CBRE’s previous project management capabilities with those of United Kingdom-based Turner & Townsend.
The parent firm's increased ownership stake in Turner & Townsend has allowed CBRE to continue expanding in the fast-growing data storage sector, Sulentic said. He said Turner & Townsend is involved in more than 150 data center projects underway, after completing more than 500 such projects over the past decade.
Data center demand
CBRE’s data center profits already have risen 2 ½ times over the past three years, he said.
“Our work with data centers clearly demonstrates how our strategy plays out in practice,” Sulentic said. “The foundational element of that strategy is to focus financial and operational resources on areas benefitting from secular tailwinds.”
Other recent moves by CBRE have included naming co-CEOs to oversee its investment management business, Adam Gallistel and Andrew Glanzman, and set up a new headquarters for its global financial business in Manhattan’s Lever House on Park Avenue.
Sulentic said the recent promotions of Gallistel and Glanzman will allow CBRE to add fund offerings.
Toronto-based Colliers was the first major commercial property brokerage to announce fourth-quarter earnings, reporting a 22% jump in revenue from increased deal activity.
JLL and Cushman & Wakefield are scheduled to release their earnings next week.
CBRE said it expects earnings per share of $5.80 to $6.10 in this year, an estimate that would mean high-teens growth at the high end.
“We expect to easily set a new peak in 2025,” Giamartino said.
“It is notable that we’re expecting this level of earnings when transaction activity is more muted than in other cyclical recoveries,” she added. “We’re again guiding to a wide range this year because of uncertainties around the level of currency headwinds and the trajectory of interest rates.”