Dallas-based commercial real estate giant CBRE Group saw its profits shrink in the fourth quarter, with global declines in sales and leasing activity.
And the property firm’s execs expect more softening in the commercial real estate market in the months ahead.
“Globally, we expect significant sales and leasing weakness in the first half before adverse conditions begin to ease later in 2023,” CBRE CEO Bob Sulentic said in a conference call with investors and analysts. “In all, 2023 will be a transition year and we feel good about where we’ll be when we get to the other side of the downturn.”
CBRE officials are basing their forecasts on a mild U.S. economic recession this year and recovery in 2024.
The real estate firm’s profit in the final quarter of 2022 fell to just $81.1 million, down from almost $692 million in the fourth quarter of 2021. Total earnings for the year were about $1.4 billion, compared with more than $1.8 billion in 2021.
Fourth quarter revenues were lower by more than 4% year-over-year to $8.2 billion.
CBRE’s business fell off in the second half of last year as rising interest rates curtailed many property transactions. Global sales revenue was down 47% year-over-year.
The company’s worldwide property leasing revenues declined by 7% in the fourth quarter.
“Among property types, multi-family and industrial fundamentals should remain strong, albeit with occupancy declining slightly from peak levels and rent growth continuing at a more modest clip than the double-digit pace set in 2022,” Sulentic said. “Office will remain the most challenged property type as we do not expect occupancy to come close to pre-pandemic levels in the short term.”
He said worker return to office in the U.S. has been slow following the pandemic
“Our current assumption is that this downward pressure that we’ve seen on office leasing is going to sustain for the time being,” Sulentic said. “We haven’t seen much change over the last few months in the return to office.”
Lender tightening of credit has quashed some property sales, leading to a decline in transaction revenues.
“Where we’re seeing activity in sales is for good assets, even in some cases office assets if they’re Class A buildings, fully leased, but for sure industrial and multi-family,” Sulentic said. “There is a lot of capital that’s been on the sidelines wanting to acquire assets.
“With leasing, we continue to see very strong fundamentals in industrial,” he said. “There is low vacancy, there are a lot of companies out there that still need space for a variety of reasons.”
CBRE’s real estate development business suffered a $6 million operating loss in the fourth quarter, compared with a year earlier $122 million profit.
CBRE owns Dallas-based Trammell Crow Co., one of the country’s largest commercial builders.
At the end of the year, the company had $16.9 billion in development projects in progress, down $2.6 billion from third quarter 2022. Most of the building projects were for industrial and apartment development.
