JLL, the world's second-largest real estate brokerage by revenue, reported declines in leasing and capital markets in its latest earnings report as the industry prepares for what executives hope will be a rebound in deal activity later this year.

The Chicago-based company, which is the last of the six major real estate brokerages to report 2022 financial results, posted a 19% drop in revenue from fees and commissions to $2.2 billion in the fourth quarter from the same time a year earlier. Leasing, sales and other capital markets activity slowed down markedly in the final months of 2022.

The brokerage joined rivals CBRE, Cushman & Wakefield, Marcus & Millichap, Colliers and Newmark in reporting a slowdown in deal activity in the fourth quarter. JLL reported a 7.7% revenue gain to just under $20.9 billion for the full year of 2022, with most of the growth recorded before rising interest rates contributed to capital markets freezing up in the third quarter.

"JLL’s fourth-quarter performance reflected the industry-wide slowdown in investment sales and leasing volumes caused by the rapid increase in interest rates, and the peak of recent inflationary pressures," CEO Christian Ulbrich said on the company’s earnings call Tuesday.

Real estate investors are waiting too see how debt markets will develop over the next couple of months before making major decisions, Ulbrich said.

"Especially the last two weeks, we saw interest rates moving up again and spreads widening again, immediately creating an additional kind of irritation to the market," Ulbrich said. "And so we have just had to be patient and let that go away. We have to wait for the third and the fourth quarter before markets will really return. The first and the second quarter will be slow quarters, especially if you compare them to 2022 where the first and the second quarter were absolutely record quarters."

Real estate capital markets ended 2022 on a weak note. Industrywide global real estate investments totaled $203 billion in the fourth quarter, a decline of 56% from the same time in 2021, as buyers and sellers unable to agree on transaction prices moved to the sidelines, Ulbrich said, citing data from JLL research.

“A lack of transactions is limiting liquidity in some markets, with investors expected to remain patient as prices settle, at which point liquidity will improve,” Ulbrich said. “Dry powder is at a near record level of $386 billion sitting on the sidelines, to be deployed once interest rate stabilize and bid-ask spreads normalize."

Global office leasing activity is down 19% industrywide in the fourth quarter from the same time a year earlier, he said.

“Tenants are still delaying decisions or taking short term actions in light of the macroeconomic uncertainty,” Ulbrich said, adding that average global office vacancy rates ticked up modestly to almost 15% at the end of 2022.

In most global markets, the best trophy office buildings are significantly outperforming lower-quality properties as tenants focus on upgrading office environments for their employees, Ulbrich said.

Tenants in industrial buildings — the industry's hottest property sector over the past two years — are also pulling back, Ulbrich said. Industrial leasing demand slowed across the globe in the fourth quarter, despite low vacancy rates and healthy rent growth in many cities, he added.

Retail property demand picked up in the last three months of the year after a slow third quarter, Ulbrich said.

The company is increasing efficiency and reducing costs across its business divisions, cutting $140 million through layoffs and other reductions on an annualized basis. The company expects to record $125 million of the cost savings this year.

“We have carefully balanced the need to reduce our costs without impacting our ability to immediately return to growth mode as conditions improve,” Ulbrich said.

JLL’s net income declined more than 58% to $175 million for the quarter and fell 17.3% to $793.4 million for the full year.