Dive Brief:
- CBRE saw net revenue growth of 20% in the third quarter amid a surge in leasing activity and facilities management services, according to its quarterly earnings report Thursday.
- Net revenue for the company’s facilities management business, within its Global Workplace Solutions segment, increased 22% for the quarter year over year, driven by broad-based strength in its enterprise and local businesses. Global leasing revenue surged 19%, well above expectations, reaching a new high for any third quarter and a 26% year-over-year increase, CBRE said.
- “We don't believe that this leasing success we've seen recently is driven by prime space,” CEO Bob Sulentic said on an earnings call Thursday. “We believe it's being driven by occupiers who … are targeting prime space first, and when that prime space is leased up, they will move on to the next best thing, which will give landlords [and] owners of office buildings the incentive to invest in B and B+ buildings to move them forward. So, we think we’re going to see some sustained strength in office leasing.”
Dive Insight:
CBRE’s Q3 U.S. leasing revenue climbed 24%, CBRE said. Greater certainty about the economic outlook is supporting occupier decision-making across primary and secondary markets, particularly in the U.S. and Europe, according to its earnings release.
“We think we're going to see a huge, slow return to the office. We do not believe we're going to go back to pre-COVID levels [of occupancy], but … we spend a lot of time with occupier customers. And everybody is talking about office space as being important to their future,” Sulentic said on the earnings call. “So, we expect there to be a sustainable move toward office space that is creating good experiences to get people back in the office, and we think the leasing success we've seen [will] continue into next year and beyond.”
Net revenue for the company’s Global Workplace Solutions segment grew about 18.8% year over year, to $2.65 billion. Net operating margin in the GWS segment reached $318 million in the third quarter, improving more than 70 basis points year over year due to cost-efficiency efforts, CBRE said in its earnings release.
The company secured more new enterprise business — including “first-generation outsourcing wins and existing contract expansions” — in the first three quarters than in all of 2023, according to its earnings presentation.
“We get a lot of growth out of expansions because we get in the door with these enormous occupiers … [they are] putting demands on you to make that portfolio [of] properties perform cost-effectively [and] to create great experiences,” Sulentic noted. “All of that creates opportunity for us. … There continues to be a good number of corporations, hospitals, universities and others, [such as] government entities, who are considering outsourcing and haven't done it yet.”
Within its GWS segment, project management net revenue increased 12% year over year, buoyed by an 18% year-over-year increase in its Turner & Townsend capital project and program management segment, which showed strength across its geographies and asset types, per the release. “The integration of the CBRE project management business with Turner & Townsend is proceeding with pace, and the combined business will start in 2025 with considerable momentum,” Sulentic said.
Global property sales revenue increased for the first time in eight quarters, in part due to 20% growth in the U.S., driven by multifamily and retail assets, CBRE said.
Looking forward, CBRE said it expects over 20% operating profit growth in its advisory segment due to improved capital markets activity, which has “passed an inflection point and is in the early stages of recovery,” Sulentic said. “We’re the market leader in capital markets and leasing, and we're investing in growing those businesses. So you should expect to see us add talent to both the leasing side of the business and the capital market side of the business,” he said.
“But we don't need to do that to grow significantly from where we are now,” Sulentic added, noting the importance of growth of its resilient businesses. The company says it has a strong pipeline of attractive investment opportunities, both for M&A and its internal businesses.
“Our efforts to scale and diversify our business have resulted in a growing total addressable market,” Sulentic said. “We've widened growth avenues in managing data centers and federal government facilities through recent acquisitions in GWS and the Turner & Townsend and CBRE project management combination, [which] opens up opportunities in infrastructure, energy and data center projects.”
In addition to Direct Line Global, a data center construction and operations company that CBRE acquired in June, Sulentic noted that Turner & Townsend is working with 110 hyperscale data centers. Between 700 to 800 occupiers also use CBRE’s internal data center services business, he said.
“We are continuing to look at opportunities to expand, mainly in the technical services space within facilities management, but also elsewhere. Look at deals like [its acquisition of government facilities services firm J&J Worldwide], that we did earlier this year, expanding into the federal government. We believe that is aa $20 billion market,” CBRE CFO Emma Giamartino said on the earnings call. “And then [its acquisition of Direct Line Global], which we believe is a $30 billion [data center] market, so we're looking at more of the same.”
