Fueled By Growth From Acquisitions Last Year, Two Largest CRE Firms Poised To Gain Market Share in 2012
Three of the top publicly traded real estate service providers -- CBRE Group, Inc., Jones Lang LaSalle and FirstService Corp., parent of Colliers International -- all reported strong fourth-quarter and full-year 2011 results, each benefitting from the global recovery in CRE sales and leasing activity.
Expect more of the same in 2012 from the industry's two largest global players, CBRE Group Inc. and Jones Lang LaSalle, which each forecast double-digit net earnings in 2012, following a series of high profile acquisitions made last year to expand their platforms in the consolidating property services industry.
Los Angeles-based CBRE (NYSE:
CBG) last week forecast a 20% jump in earnings per share for 2012, while JLL continued to expect "medium-term" margin increases of 14% to 15% over the next 18-24 months. Both companies expect revenue growth from their expanded platforms and rising outsourcing and investment sales will help improve margins, despite a slow and inconsistent recovery that recently has showed signs of stabilizing.
Overcoming lower leasing revenue in the Americas, CBRE reported higher-than-expected earnings in the fourth quarter, fueled by increased revenue from investment sales and property management outsourcing. Revenue for the quarter totaled $1.8 billion, an increase of 7% from $1.7 billion in the fourth quarter of 2010, and rose 15% for the full year to $5.9 billion over 2010.
Chicago-based Jones Lang LaSalle (NYSE:
JLL) last week reported fourth-quarter earnings of $85 million, capping a 29% increase in adjusted net income to $215 million in 2011, driven by leasing and capital markets transaction growth.
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FirstService Corp., parent of Colliers International, reported solid fourth-quarter net earnings and record revenue for 2011, led by healthy gains in
commercial real estate and property management and strong internal growth in the Americas, including solid year-over-year growth in brokerage, property management and project management activity.
CBRE Group, Inc.
Excluding charges mostly related to the acquisition of the ING Group Real Estate Investment Management businesses, CBRE reported a lower profit of $79.8 million for the fourth quarter compared with $95.1 million for fourth-quarter 2010. For the full-year 2011, CBRE net income rose 19% to $239.2 million, compared with $200.3 million in 2010.
The firm grew its platform by acquiring ING Group REIM despite a year of "unexpectedly tough operating conditions" in many parts of the world, particularly during the second half, said CEO Brett White, who credited the firm’s highly diversified platform as the key to its fourth-quarter results. Outsized gains from CBRE’s development portfolio, strong 14% growth in global outsourcing revenue, continued capital markets strength and careful expense management helped offset tepid economic growth and global concerns about sovereign debt, particularly in Europe, White said.
Contributing to a fifth straight quarter of growth in outsourcing, CBRE was awarded multi-year contracts by Unilever in its Asia Pacific, Middle East and Eastern Europe operations; Newell-Rubbermaid in Asia Pacific and the United Kingdom Commonwealth Office Co. in Europe.
CBRE further announced that it picked up Microsoft Corp. as a client and will be providing integrated real estate services for the software giant’s 34 million-square-foot global portfolio, including strategic and portfolio planning, property, facilities and construction management, lease administration and other services. Property and facilities management was CBRE's second-largest service line in the fourth quarter of 2011, representing 31% of total revenue in the quarter with a 14% increase over the fourth quarter of 2010.
Leasing declined in the Americas, in part due to a "difficult comparison" with an outsized 45% gain in the fourth quarter of 2010 from the previous year, resulting in a moderate decline in leasing revenue for CBRE globally for the quarter. However, leasing revenue for all of 2011 set a new record for the company at $1.91 billion, surpassing the 2007 peak of $1.87 billion, while worldwide property sales revenue rose 10%, paced by solid growth in the Americas and Asia Pacific.
The company’s development services business contributed to fourth-quarter results, while global investment management business improved 31% during the fourth quarter, including revenue from the ING REIM businesses in Europe and Asia. CBRE expects modest growth in rents for 2012, mostly in the second half, with meaningful job required for any significant boost in rents in the Americas and elsewhere.
"We believe that the commercial real estate market will continue to recover in 2012 despite continued macro challenges," White said in a conference call with analysts, adding that CBRE expects to grow margins even in a "soft transaction environment." Outsourcing will grow in the low-double digits, while investment sales will also increase, still driven mainly by trading of core assets but with an increasing contribution from recovering secondary markets.
Jones Lang LaSalle
Chicago-based Jones Lang LaSalle earlier this month reported fourth-quarter earnings of $85 million, capping a 29% increase in adjusted net income to $215 million in 2011, driven by leasing and capital markets transaction growth. JLL posted a record $3.6 billion in revenue for 2011, up 23% over the previous year, with all business units except LaSalle Investment Management reporting double-digit growth. The $1.5 billion in revenue for the Americas for 2011 and $510 million in fourth quarter is a 21% and 19% increase over the prior year, respectively, led by gains in capital markets and hotels and leasing.
JLL President and CEO Colin Dyer said the fourth quarter was a strong finish to a year that saw record growth fueled by the acquisition of King Sturge in Europe and increases in every global business segment.
"These results and the strategic actions we took during the year position us for continued growth and success in 2012," Dyer said.
JLL spotlighted gains in market share in recent quarters, including increases in U.S. property leasing volumes that were higher than the industry average in the fourth quarter.
"Heading into 2012, our transaction pipelines for both leasing and capital markets look solid, and we are well-positioned to continue to improve on our margins in the Americas," added CFO and COO Lauralee E. Martin during the firm's call with analysts. "We have completed the year in a stronger operating and financial position than where we began."
Business wins in 2011 included 62 new corporate outsourcing assignments, expanded relationships with 38 clients and 41 contract renewals. JLL’s rapidly growing corporate solutions business serving mid-market clients won another 51 assignments, up from 35 in the prior year. Pharmaceutical and health care company GlaxoSmithKline selected JLL as its sole provider of services for its 80 million-square-foot global portfolio. The firm will provide project management services for AMC Theaters on 4 million square feet of remodeling projects, while UBS reappointed JLL as real estate advisor in 27 countries across Europe.
In Seattle, investment sales professionals who joined JLL in an October merger with Pacific Real Estate Partners completed the $77 million sale of 1800 Ninth Avenue. JLL represented DIRECTV in its lease of 630,000 square feet in El Segundo, CA, the largest office transaction in the Los Angeles market of in the last decade.
The company expects lower U.S. leasing volumes in the broader CRE industry over the next few quarters, driven by weakness from the government and financial sectors offsetting strength in technology and energy. However, gradually rising rents could bring leasing commission increases in the U.S. in 2012 as tenants and investors gain confidence and become more active than they were during the second half of last year.
"What you're seeing globally is a continued cyclical recovery in demand for both rental space and investment service properties," Dyer said. "We're seeing a slight hesitancy in [fourth quarter], but a good demand base to progress in 2012."
Both JLL and CBRE expect to continue to capture market share in a highly competitive leasing conditions in most world markets
"This business is rapidly consolidating down to a very small number of players," CBRE's White said, adding that the two largest firms are "going to capture the vast majority of the available share going forward."
"That trend is absolute, and I suspect that the mid-tier firms and the smaller firms, you're just going to see them lose more and more share every quarter and every year." At the same time, "we've got a lot of work to do to retain that number one position in every major world market, because it's under attack everywhere," White added.
FirstService Corp.
FirstService (NYSE:
FSRV) on Wednesday reported profits attributable to common shareholder of $65.6 million, or $2.01 per share, compared with a loss of $3.7 million, or 12 cents per share, for the same period a year ago. Overall revenue for the Toronto-based global property services company rose to a record $2.2 billion in 2011, with fourth-quarter revenue rising 8% to $594.9 million.
The Colliers-led commercial real estate services segment reported a 12% increase in revenue in the fourth quarter to $300.4 million.
"Colliers International led our growth with strong increases in revenues and profits, particularly in the Americas, Asia and Central and Eastern Europe as we continued to strengthen the brand, increase our margins and integrate worldwide operations,” Jay S. Hennick, founder and CEO of FirstService, told analysts Wednesday.
Colliers’ internal growth was led by the Americas region, which had solid year-over-year growth in brokerage, property management and project management activity, Hennick said.