CBRE, the world's largest commercial real estate brokerage, reported gains in global office leasing that exceeded expectations as more businesses decide to rent higher quality space.
The Dallas-based firm said its profit of $225 million in the third quarter, up nearly 18% from the same time last year, was driven by double-digit revenue and profit growth in its leasing business. The better-than-expected results led the company to raise its expectations for the rest of the year, sending CBRE's shares up 6.4% in early trading.
The profit gain from the first major commercial real estate brokerage to report third-quarter earnings signals a return in global office leasing demand even as CBRE diversifies its offerings to become less reliant on transactions. CBRE's three business segments — advisory, global workplace solutions and real estate investments — were solid in the third quarter, helped by its stake in Turner & Townsend, a project management company for the real estate, infrastructure and natural resources sectors.
"All three business segments posted strong double-digit revenue and segment operating profit growth along with significant operating leverage," CBRE President, CEO and Chair Bob Sulentic told investors during an earnings call Thursday. "Key drivers included our resilient businesses where net revenue grew 18% to $3.6 billion led by Turner & Townsend, as well as leasing, which posted 19% revenue increase fueled by accelerated office demand. In addition, capital markets transaction activity has passed an inflection point and is in the early stages of recovery."
CBRE's global office leasing revenue increased 26%, reaching a third-quarter record for the brokerage, led by the Americas and Europe and demand for high-quality office space as employers seek to lure workers back to the office, Chief Financial Officer Emma Giamartino said on the call.
Global property sales revenue increased for the first time in eight quarters, driven by a 20% growth in the United States boosted by apartment and retail properties. CBRE is on pace to combine its U.S. project management business with U.K.-based Turner & Townsend, with Sulentic telling investors the combination is expected to start 2025 with "considerable momentum."
CBRE has a "strong pipeline of attractive investment opportunities" both for mergers in the firm's services businesses and in real estate investments, Sulentic said. In all, the real estate services firm has invested $1.3 billion in mergers and acquisitions activity and investments to date this year, executives told investors.
The firm increased its outlook for its full-year core earnings per share to $4.95 to $5.05, up from the previous outlook of $4.70 to $4.90.
The Fed's move to lower interest rates in September and an anticipated improvement in the real estate capital markets has heightened investor enthusiasm for the real estate services sector, Sulentic said.
"We expect to benefit from a capital markets recovery over the next several years," Sulentic added. "But it's important to stress that CBRE's strong short- and long-term growth prospects are excellent regardless of the real estate capital markets impacts."
Finding resilience
CBRE's so-called resilient businesses, including property management and valuation services, are expected to bring double-digit growth to the real estate services firm and help bolster its client base, Sulentic said. This includes the firm's recent acquisitions of J&J Worldwide and Direct Line Global, giving it the ability to manage data centers and federal government facilities, he added, and opens up opportunities in infrastructure, energy and data center projects.
The J&J Worldwide acquisition, a deal that could exceed $1 billion, closed in February, as CoStar News has previously reported. The Direct Line Global business was unveiled in June and expected to have an immediate impact on CBRE's bottom line, as CoStar News reported. Earlier this month, CBRE told CoStar News it was also making a big bet on clean energy with the acquisition of NRG Energy's renewable advisory group.
CBRE's bottom line has greater earnings growth potential than at any point in its history because of its diversification into more resilient sectors, said Giamartino. CBRE's resilient business lines make up about 60% of the firm's earnings streams, compared to 32% in mid-2009.
"Our investments and resilient businesses have changed the complexion of our company," she added. "These resilient earnings are significantly less volatile than our transactional businesses and, most importantly, we expect them to achieve enduring double-digit organic growth, which we believe can boosted even further by M&A."