CBRE Group Inc. is cutting $400 million of costs, with a significant portion through layoffs, as the world's largest commercial real estate brokerage by revenue braces against the economic headwinds that have picked up in the past few months.

The Dallas-based firm is the first commercial real estate brokerage to report third-quarter earnings, giving an indication of what may come in the week ahead as rivals including JLL, Cushman & Wakefield and Newmark report their own financial results to investors. It's the first sign that CBRE, which told investors in May to anticipate double-digit revenue growth this year, is seeing a deteriorating effect this year on its business.

The capital markets environment went downhill last month, causing CBRE's sales and loan originations to fall sharply, President and CEO Bob Sulentic told investors on a conference call to discuss financial results on Thursday.

“Lower third-quarter core earnings per share reflected a sharp deterioration in the macro-environment, particularly with regard to capital availability for transactions,” Sulentic said. “In contrast with last year’s strong third quarter, the capital markets environment weakened materially after Labor Day, causing both sales and loan originations to fall sharply."

Sulentic said the economy is headed toward a recession, and that will affect leasing.

"There is an abundance of renewals in the marketplace to be done, and we'll see that continue this year into next year," he told investors. "There will be some downward pressure as we go into a recession. There's always downward pressure on leasing in a recession as companies look to defer costs and save money by extending for short periods of time. We expect leasing to be more flat in the fourth quarter as it benefits from the built-up number of renewals in the fourth quarter and into next year."

Equity declined 19% to $1.13 per share in the third quarter from a year earlier, with revenue increasing 10.8% to more than $7.5 billion. The company adjusted its expectations on per-share earnings for the year to account for a further drag of foreign currency effects on CBRE's business. The firm expects an additional $25 million of negative foreign currency effect this quarter, now totaling $125 million, leading executives to tell investors to expect full-year earnings per share growth in the mid-single digits.

With capital sources moving to the sidelines amid economic uncertainty, Sulentic said property owners such as CBRE are delaying the sale of assets until more certainty returns to the market. Until a return to economic certainty, the brokerage plans to pursue $400 million of cost-cutting with a top-down, grassroots approach, with about $300 million of that expected to be permanent costs including employee layoffs.

The remaining $100 million of cost-cutting efforts are expected to be temporary until business activity normalizes, he said. CBRE did not immediately respond to requests from CoStar News for additional details on the layoffs.

The cost-cutting measures are independent of variable costs already baked into CBRE's business, including commissions, incentives and bonuses, Sulentic said.

About $175 million of cost-cutting measures are expected to be taken by year-end, with the following reductions in cost going into effect by the end of the first quarter of 2023.

"While downturns are never welcome, they present opportunities to consolidate our position as global occupiers and investors gravitate to the industry leader," Sulentic told investors. "We fully intend to make the most of these opportunities."

CBRE Chief Financial and Investment Officer Emma Giamartino told investors the firm's executives are anticipating deal activity to return by late 2023, depending on some economic variables, with executives anticipating a "harsher and longer downturn" compared with prior expectations shared by the firm's executives last quarter.

Credit spreads are tightening as rates rise, with tightened underwriting requirements, Giamartino said, and the lending environment has set prices that are uneconomical for borrowers. The return on deal activity will also depend on if the Federal Reserve reverses its course on raising interest rates, she added.

CBRE plans to invest more aggressively during these uncertain times, Giamartino said, with 5.1 million shares repurchased in the third quarter for a total investment of $408 million. Year to date, CBRE has invested $1.4 billion in repurchasing shares with that expected to increase sequentially in the fourth quarter to fall somewhere between $500 million and $700 million, she said. The firm's merger and acquisition pipeline is also robust, she said.

"Current market conditions are increasing the likelihood we will be able to act on them," she said. In September, CBRE invested $100 million into real estate tech firm VTS, just a few months after the firm upped the ante on its investment in flexible office space provider Industrious. Sulentic told investors he's seen a growing interest from companies looking to leverage the use of flexible office space as decisions get tougher to make in the uncertain environment.

CBRE plans to continue focusing on parts of its business that are more resilient to economic headwinds. Earlier this year, Sulentic told investors the company was preparing for a fourth-quarter recession by focusing on its outsourcing business, valuations, property management, loan servicing and some parts of its investment management and development business. In the third quarter, he said those business lines posted solid results.

Meanwhile, leasing has performed well, led by the office sector, Sulentic said. CBRE's global leasing revenue rose across all major property types, with leasing revenue worldwide increasing year over year by 14%. The Americas led in leasing revenue growth, with an increase of 19% from the prior year. Leasing revenue growth was also strong overseas, including Europe, but that bump in business was masked by significant foreign currency headwinds, executives said.