Cushman & Wakefield, the world's third-largest commercial brokerage, is betting that capital markets activity will pick up this year despite persistently high interest rates that have been a drag on deals across the industry in recent months.
Executives for the Chicago-based firm said first-quarter results were stronger than expected, despite a 3% drop in revenue to $2.18 billion from the same time last year and a net loss of $28.8 million, driven partly by declines from its capital markets and its property services businesses.
A 5% increase in leasing revenue to $381.7 million helped offset a 3% decline in property management and a smaller-than-expected 1% decline in capital markets in the quarter, the company said.
“Our outlook and optimism for the recovery are strong, and we continue to position our business in a thoughtful way for this next stage in the cycle,” CEO Michelle MacKay said in an earnings call with analysts, adding the company expects "a moderate initial reduction in rates sometime late in the year.”
Cushman & Wakefield is the first publicly traded commercial property brokerage to report financial results for the quarter, providing an indication of what may come as rivals announce their outcomes and expectations in the coming weeks.
Industrywide, total monthly commercial real estate transaction volume was down as much as 61% in the first two months of the year, Morgan Stanley analyst Ronald Kamdem said in a note to investors. Kamdem said he expects mixed results for the brokerages in the first quarter as transactions continue to edge lower than expected.
The company reported total fee revenue from all its service lines of just under $1.5 billion, about even with the expectations of a consensus of Wall Street analysts.
The company expects leasing "will continue to benefit from global economic resilience,” MacKay said.
Inflation, Debt
Cushman is sticking to expectations that leasing should be relatively stable and capital markets will start to recover sometime in the second half of the year, despite inflation failing to drop as quickly as hoped, dealing a setback to the chance, some analysts say, that the Federal Reserve will begin cutting interest rates.
"Although the recent uptick in rate volatility will likely cause a pause in transaction volume in [the current quarter], the improvement we experienced gives us confidence that global investment pipelines are solid, and investors are ready to engage when the time is right," MacKay said.
MacKay said the company "maintained our cost discipline," and has made headway on efforts to reduce its debt. The company repaid and refinanced debt in the first quarter to reduce its annual interest expense by $6 million.
"Looking forward, we will build upon this quarter’s momentum and continue to position ourselves to capitalize on growth opportunities as they arise," she said.
Kamden added that while Cushman's debt reduction is a positive for the company, "we continue to see elevated rates and rate volatility as a headwind to the commercial real estate recovery” for Cushman and other real estate brokerages.
Cushman and other commercial property brokerages said in February they expect this year’s earnings will be more heavily weighted to the second half of 2024 as they look for capital markets and leasing activity to start a tentative recovery.
Colliers, the fourth-largest commercial real estate brokerage by revenue, is set to report earnings on Thursday, followed by Newmark and CBRE, the world’s largest, on Friday, and JLL, the second-largest by revenue, on May 6. Investment sales brokerage Marcus & Millichap is scheduled to report on May 8.