Leasing activity among businesses has finally joined the commercial real estate recovery, with publicly traded CRE services companies reporting a sharp increase in leasing demand at year-end 2013 from tenants across all property types and geographic regions.
While the major CRE service providers reported a rebound in their business as strong investment sales emerged as a revenue and income driver in recent quarters, leasing activity largely lagged as occupiers continued to burn-off under-utilized 'shadow' space to handle near-term expansion and postponed longterm business decisions to gauge the impact of the federal budget resolution and the impact of rising interest rates on their effect on economic and future space requirements.
In third-quarter 2013, company executives noted that supply and demand was reaching an inflection point in a growing number of commercial property segments, where occupiers were willing to take on more space and sign longer-term leases.
Commentary on fourth-quarter and year-end results from senior executives with CBRE Group Inc. (NYSE: CBG
), Jones Lang LaSalle (NYSE: JLL
) and FirstService Corp. (Nasdaq: FSRV
), the parent company of Colliers International, indicated that the stronger-than-expected increase in leasing momentum that began in the second half of last year broadened in the fourth quarter should continue to accelerate well into 2014.
JLL reported solid fourth-quarter results, marking the second consecutive quarter of revenue and income growth that exceeded Wall Street expectations, with stronger leasing and capital markets performance across all global regions and accelerating growth in facility management and project and development revenues.
Leasing will improve this year as corporate occupiers "shift their sights from consolidation and hesitancy to growth and expansion," with gross absorption forecasted to rise 5% to 10% over last year, said Colin Dyer, JLL president and CEO. Investment sales volumes will increase by about 15% above 2013 levels to around $650 billion, added the CEO of the Chicago-based firm.
For the second consecutive quarter, CBRE reported double-digit growth and strong market share gains in global leasing revenue -- with a notably sharp improvement in the Americas, "where our strategic investments to boost market share are clearly bearing fruit," said Bob Sulentic, CBRE president and CEO. Even amid a continuing sluggish macro environment for leasing, volumes in the Americas rose 15% in the fourth quarter and 10% for the year, momentum that will extend into the current year, he added.
"In 2014, we look to benefit from some market lift as we further advance our strategic plan to increase market share, and we expect mid- to high-single-digit growth," Sulentic said.
FirstService highlighted a 20% year-over-year increase in leasing volumes as leasing finally surged ahead of investment sales as a growth driver in the fourth quarter.
While sales were up a strong 13% in the final quarter," "The signed leasing environment is improving in most of our markets," according to President and Chief Operating Officer Scott Patterson.
For all CRE services firms, the improved leasing results appear to show the beginning of a more robust recovery, as investment sales had been driving overall growth for the last few years, said Brandon Dobell, analyst with William Blair.
"A return in solid leasing helps fill a piece that had been missing in the recovery,” Dobell said in a research note. "In general, the tone within the market has improved -- fundamentals have caught up with the strong demand from capital for commercial real estate."