Executives at Newmark, the first large commercial real estate brokerage to report second-quarter earnings, said they expect a strong second half of the year despite declines in leasing and acquisition activity as companies respond to the slowing economy.
The New York-based firm, buoyed by a fifth straight quarter of record-breaking revenue, reiterated that it expects 2022 revenue to increase as much as 7% over last year as it focuses on business producing recurring contract income, such as consulting, valuation and loan servicing.
"We remain confident in our 2022 outlook despite the near-term macroeconomic headwinds," CEO Barry Gosin told analysts during the company's earnings presentation Friday. "We believe that our clients appreciate the expertise of our professionals, especially in times of uncertainty."
The cautiously optimistic forecast could be a promising sign for the commercial real estate industry as other large brokerages prepare to report second-quarter results. CBRE, JLL, Cushman & Wakefield, Colliers International and other publicly traded companies are scheduled to report earnings next week.
In the Friday call with analysts, Newmark executives doubled down on projections made in February that the company would surpass last year’s record revenue of $2.9 billion. Total revenue is expected to rise between 3% and 7% this year, they said.
The company reported revenue of $755.4 million for the period ended June 30, a 20% increase from the same time a year earlier. It reported its best-ever quarterly earnings from management services and mortgage servicing fees.
Gosin acknowledged that Newmark brokers have reported slowed office sales and leasing as companies evaluate how much office space they will need with more employees working from home than before the pandemic.
“The only question that we all have to face is how long the period of reconciliation will be,” he said.
Some Declines Expected
Activity in property sales and other capital markets transactions will probably decline more than in leasing in the remaining months of the year, but regular income from consulting and loan servicing will continue to grow, Newmark executives said.
“We’re in the trading business, so companies need advice," Gosin said. "We're actually doing some very large transactions for clients in coworking or flex work who are taking five-year leases in flexible work environments.”
Gosin noted that investors with $250 billion in available capital are looking for property in the United States.
"There is certainly still a desire to acquire,” Gosin said. “There is a period in any change where there's an element of discovery that has to be determined between the buyer expectations and the seller expectations. And that's the period we'll be in for a couple of quarters.”
Gosin said his brokers are starting to report some capitulation by sellers on asking prices and “as soon as that occurs, they'll just be back to business and things will start trading again.”
Morgan Stanley stock analysts that follow the brokerage industry project “a fundamental shift on commercial real estate,” in the second half of 2022 as income from property sales, financing and leasing decline amid a pullback in deal activity and rising interest rates that add to borrowing costs.
“We see signs of a meaningful slowdown given rising interest rates and economic uncertainty,” analysts Richard Hill and Ronald Kamdem said in a recent research note previewing brokerage earnings.
Some of the nation’s largest office developers, including Boston Properties and Kilroy Realty, are pausing some projects and bracing for a downturn in leasing demand as companies respond to mounting economic uncertainty by pulling back on long-term financial commitments.
Prologis, the world’s largest warehouse and distribution landlord, this month projected that demand could also pull back and vacancies could rise in industrial real estate, the hottest property sector since the onset of the pandemic, as leasing tapers back to pre-pandemic levels.