CBRE Group Inc., the world's largest commercial property brokerage, cut its profit forecast as earnings fell 57% in a sign of an industry struggling with a delayed recovery in capital markets.

The Dallas-based firm revised its outlook for the full year, telling investors it now expects core earnings-per-share to decline 20% to 25% from its previous outlook of low-to-middle double digit declines, according to an investor presentation. Net income in the second quarter fell to $258 million from $604 million in the year-earlier quarter.

CBRE is the first brokerage to report earnings for the past quarter, offering a hint at what might come from other major publicly traded brokerages in coming weeks. The firm's second-quarter revenue declined 1% to $7.7 billion from the prior year's quarter, with better-than-expected growth in its global workplace solutions business offsetting its weaker-than-expected property sales in its advisory business.

Even with the profit drop, CBRE reaffirmed its earlier message that it is eyeing multiple billion-dollar M&A deals to help its bottom line.

"You should expect to see M&A from us that will expand our capability to serve our company with really well-run companies with really good brands and if we can't get those kinds of deals done, we are not going to do M&A," President and CEO Bob Sulentic told investors Thursday. "We're not going to force it to just build scale, we can build scale through organic growth."

During the quarter, CBRE completed four acquisitions totaling $143 million in cash and deferred consideration. One of those deals was the purchase of a valuation firm specializing in U.S. senior housing and healthcare real estate, called Valuation & Information Group, to help boost its valuation and advisory services.

CBRE Chief Financial Officer Emma Giamartino told investors the firm is maintaining an "investment-grade balance sheet" with a "robust M&A pipeline" and is evaluating multiple billion-dollar opportunities. CBRE did not repurchase any of its shares in the second quarter that ended June 30, but the firm has completed $100 million in share repurchases so far in July.

If the potential deals don't close, Giamartino previously told investors the firm would accelerate its share repurchase activity. CBRE declined to provide more information about the potential deals beyond what was said in the earnings call.

The industry's capital markets woes are expected to continue throughout the rest of the year, with CBRE's executives still anticipating "a mild recession" in the back half of this year. The firm's leadership expects improved performance from the past quarter moving into next year.

In comparing the prior-year's quarter to this quarter's results, Sulentic told investors it was "especially difficult" given the second quarter of 2022 was the firm's "best quarter ever for earnings," driven by "exceptionally robust development earnings." Earnings in the second quarter last year exceeded the level of development operating profit in any prior full year except 2021, he said.

CBRE expects business at its development arm, Trammell Crow Co., to pick up as capital becomes available for buyers. Right now, the developer has $17 billion of product in its development pipeline, with an additional $13 billion of projects it has control over and has yet to develop. 

"We have flexibility on when we harvest them," Sulentic said, adding the division only sold one building in the quarter. "We have decided it is not a good time to sell our assets and it positions us well in the future."

CBRE's total advisory net revenue declined 21% in the second quarter compared to last year. The weaker-than-expected results were driven by capital markets revenue declining 44% compared with the prior year's second quarter and leasing revenue declining 16% year over year.

Giamartino attributed the decline in the firm's year-over-year leasing revenue primarily to its Americas business, with office leasing revenue down 30% and industrial leasing declining 10%. Meanwhile, leasing revenue grew in overseas markets, she said.

In the Americas, Giamartino said property sales revenue declined 49%, reflecting limited credit availability and the gap between buyer and seller expectations. Industrial real estate sales are beginning to tick up with buyers accepting modest negative leverage because of embedded rent gains seen in the past few years, she said.

CBRE had $18 billion of U.S. multifamily deals in the market being shopped to would-be investors at the end of the second quarter, more than double the volume of U.S. multifamily deals it sold in the first half of the year.

The firm's net revenue for its global workforce solutions business grew 13% with facilities and project management showing double-digit growth for the second quarter.

The economy performed better than expected in the quarter in terms of employment growth and gross domestic product, Sulentic said. But that was not the case for interest rates, which increased. Estimates that rates will end the year higher than projected is expected to continue to pressure elements of CBRE's business that are sensitive to commercial real estate capital flows, such as its sales and financing businesses, Sulentic said.

"We expect this pressure to continue for the remainder of the year," he said, adding a potential mild recession has been delayed, which has also delayed a would-be recovery. The locked-up capital markets also need to start moving, he added, which could happen as early as next year.

"People are getting ready to act, which is good news," Sulentic said. "We think things will sort out more with the banks now and there will be debt available for them. We are feeling better about where things are going to be, but we'll probably see that happen next year."