Dive Brief:
- Net revenue for CBRE’s global workplace solutions segment increased 9.6% year over year, to $5.8 billion in the first quarter of 2024, according to the firm’s earnings release Friday.
- Growth in the GWS segment’s total net revenue was driven by an 11% year-over-year increase, to $1.55 billion, in facilities management net revenue in the first quarter, while project management net revenue rose 7% year over year, to $790 million. Net margin for the GWS segment’s operating profit contracted 90 basis points year over year, to 9.9%. “Our costs in GWS have increased at an unacceptable rate, and we have initiated actions to bring them back into line with revenue trajectory,” CBRE CEO Bob Sulentic said on an earnings call Friday.
- “We had a second consecutive quarter of very strong business wins, with a healthy balance between new clients and expansions,” CFO Emma Giamartino said on the call. “As of the end of Q1, we already have commitments for nearly $900 million of anticipated net revenue growth, representing the significant majority of our projected growth for the full year.”
Dive Insight:
In addition to strong facilities and project management revenues, CBRE benefited from a global leasing revenue growth of 4% year over year in local currency, within its advisory services segment, exceeding expectations,CBRE said. Americas leasing revenue also rose 4%, with the U.S. achieving “solid growth for the first time in six quarters,” according to the company’s earnings release.
Office leasing grew by double digits globally, driven by a resilient economy and return-to-office plans which “emboldened tenants to make occupancy decisions,” Giamartino said on the call. “Financial services companies are leading their recovery with active demand up more than 20% year over year, across U.S. gateway markets, reflecting their considerable progress in bringing employees back to the office. Tech companies continue to lag with demand 50% below pre-COVID levels,” Giamartino added.
Life sciences and healthcare accounted for 20% of facilities management revenue in the first quarter, while industrial and manufacturing contributed 17%, according to the company’s earnings presentation.
Project management net revenue was slightly below trend, reflecting a “difficult comparison with the first quarter of 2023, when net revenue rose 18%, CBRE said in the earnings release.
“Project management in general … is a big growth opportunity,” Sulentic said on the call. “Our whole outsourcing business, our whole GWS business is benefiting from a long-term secular double-digit growth profile and we expect that to continue.” Sulentic added that the firm expects this double-digit growth to continue for its local GWS and enterprise businesses.
Despite high-single-digit growth in revenue and net revenue, GWS’ segment operating profit rose just 0.4% year over year in local currency to $232 million. Segment operating profit on net revenue margin declined to 9.9% in the first quarter from 10.8% in the first quarter of 2023.
On the call, Sulentic attributed more than half of that decline to a one-time impact of “unusually large medical claims” in the company’s advisory business. The company “is now focused on substantially reducing” these costs, according to its earnings release.
Sulentic pointed to two areas of higher cost accounting for the remainder of that decline. “First, we’ve made investments in certain initiatives that we are discontinuing. Second, our operating expenses crept up over time as we’ve expanded into two sectors, new geographies, and added redundant costs related to recent M&A,” Sulentic said.
In response, CBRE is taking a “fresh look” at GWS’ cost structure and “already executing substantial actions across the business” which will become apparent later in the year, particularly in the fourth quarter, Sulentic said. These actions include consolidating the management of the firm’s advisory and GWS segments under CBRE Chief Operating Officer Vikram Kohli, “with an explicit focus on rapidly wringing out unnecessary costs and better integrating the solutions we deliver for occupier clients,” Sulentic said.
The company expects mid-teens operating profit growth for the GWS segment, Giamartino said, with new revenue from CBRE’s acquisition of J&J Worldwide Services expected to contribute a little less than $450 million of net revenue for the year.
