Despite Mounting Anxiety Over Global Economy, CBRE, JLL Continue to Grow Revenues, Earnings and Market Share
The global recovery in property sales and leasing continued to translate into boosted revenues and profits for the world’s largest
commercial real estate services firms at the midpoint of 2011, according to recent financial results.
Led by a boost in activity in the Americas, revenue for Los Angeles-based CB Richard Ellis Group Inc. (NYSE:
CBG) grew 21% to $1.4 billion in the quarter ended June 30, while net income rose 12% from a year earlier to $61.2 million, or 19 cents per share. Revenue for the first six months totaled $2.6 billion, an increase of 19% from $2.2 billion in the same period last year.
Jones Lang LaSalle (NYSE:
JLL) saw second-quarter profits jump 38% to $44.1 million, or 99 cents a share, from the same period last year as revenues increased 24% in U.S. dollars to $845.3 million. Revenues for the six-month period increased 22%.
Toronto-based FirstService Corp. reported lower-than-expected U.S. revenues from its Colliers International segment, where it was worked aggressively to build its brand and presence over the last couple of years. However, total global revenue for Colliers grew 13% to $245.7 million in the second quarter.
Results for HFF, Inc. (NYSE:
HF) were well above already positive Wall Street expectations. The company said this week that revenues increased a whopping 114% in the second quarter to $72.9 million from the same time a year ago, with revenues for the first half rising at a similar clip. Total transaction volume rose 88% in the first six months to $15.3 billion.
Executives acknowledged that rising concerns over sovereign debt issues in Europe, the government debate over the debt ceiling in the U.S. and other global economic factors have created a measure of uncertainty and anxiety in the marketplace.
"Broadly speaking, the multispeed global recovery continues. However, we have seen confidence weaken recently amongst both our corporate and investor clients as concerns about government finances in a number of countries, job growth stagnation in certain economies, and political tensions in the Middle East have affected the mood of both businesses and consumers," said Colin Dyer, president and chief executive officer of Jones Lang LaSalle.
Property fundamentals remain challenged even as conditions continue to improve in select tier-one markets and in property types such as multihousing and hospitality, said HFF John H. Pelusi, Jr. Sovereign debt issues in the U.S. and Europe and other global factors could negatively affect the real estate market, especially in the U.S.
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"Given that property level fundamentals have historically lagged the U.S. economy, we expect them to remain challenged for select property types, especially in secondary and tertiary markets, throughout 2011 and possibly beyond. The aforesaid headwinds have the potential to adversely impact transaction volumes relative to historical norms in the U.S.," Pelusi said.
Brett White, chief executive officer of CB Richard Ellis, said revenue rose by double digits in nearly every service line across all three geographic regions, despite "continued uncertainty in the macro environment."
"This performance illustrates the ability of our people and platform to drive continued business gains in a global economy that is still marked by slow, uneven growth," White said.
"While [Colliers] revenues in the U.S. were slightly lower than expected for the quarter, a result of slowing economic growth and lower confidence levels, we made great strides operationally as we continued to build out our U.S. platform," said D. Scott Patterson, FirstService president and chief operating officer.
CBRE’s growth this year included the acquisition during the second quarter of Clarion Real Estate Securities from ING Groep NV, along with interests in funds the business managed. CB Richard Ellis said in February it would pay $940 million to buy the assets--including essentially all of ING's real estate investment-management operations in Europe and Asia, to add to its own investment-management business.
CBRE’s global property leasing revenue rose 22% and was up strongly across every geographic region. Second-quarter leasing performance in the Americans was significantly better year over year than in the first quarter.
Reflecting the strengthening of the real estate capital markets, sales revenue grew 44% globally, paced by a 68% increase in the Americas. CBRE reported robust growth in mortgage brokerage revenue, 47%, as loan origination and sales more than doubled across a broader group of lenders.
All three of CBRE’s geographic regions reported double-digit growth in outsourcing revenue in as the company signed a record 47 long-term outsourcing contracts during the second quarter, including 15 with new clients and 32 expansions or renewals of existing contracts. During the quarter, the company was awarded contracts to provide transaction management for the U.S. Postal Service's 300 million square foot portfolio.
CBRE also announced an agreement with Walgreens to provide facilities management and project management for more than 7,500 locations totaling more than 115 million square feet across the U.S.
The Americas was the company's fastest growing region with a 24% revenue increase. Asia Pacific revenue rose by 19%, due primarily to strong performance in Australia, China and India. Notwithstanding continued sovereign-debt concerns, revenue for Europe, the Middle East and Africa (EMEA) rose 16%, driven by leasing and outsourcing growth.
JLL posted double-digit percentage increases across all regions for real-estate services revenue, led by a 26% increase in the Asia Pacific. In the Americas, second-quarter revenue increased by 17% to $348 million over the prior year. Leasing and capital markets and hotels, which more than doubled to $32 million, led the revenue increase. Year-to-date revenue in the region was $636 million in 2011, up 21% over 2010.
The company's second-quarter results included $6 million of restructuring and acquisition charges and $2 million of intangible amortization related to the King Sturge acquisition, which increases JLL strength and depth in Europe, Middle East and Africa.
"While the cyclical recovery in global real estate markets continues, business confidence is being tested internationally by concerns over government finances," Dyer said. "We expect to continue to grow our market share worldwide and remain positive on our prospects for the seasonally stronger second half."
JLL's operating expenses in the Americas rose 23% in the first six months to $595 million from a year ago. Driving the higher costs were expenditures related to new business generation such as travel and marketing, which will contribute to seasonal revenue growth in the second half, as well as higher costs for services required for "several recent business wins," the company said.
JLL said at the beginning of the year it would focus on growing market share in the America. The strategy as expected has produced flat margins year over year, but the firm added a net 60 leasing brokers, 25 capital markets brokers and hotel brokers so far in 2011, said Chief Operating Officer Lauralee Martin.
At Colliers International, revenues were up significantly over the prior year, with strong increases in Central and Eastern Europe and Asia Pacific, and solid increases in the Americas, led by Latin America, said Jay S. Hennick, Founder and Chief Executive Officer of FirstService.
FirstService officials said revenues for the U.S. were slightly lower than expected as a result of slowing economic growth and lower confidence levels. FirstService executives noted that much of the growth in the market by JLL and CBRE, the industry's two largest players, is related to investment sales growth in the U.S. -- not a Colliers strength in North America.
However, Colliers continued to recruit talent and build out its U.S. platform, hiring about 50 new U.S. producers.
"We continued to be very active on recruiting front, particularly in the U.S., adding key personnel in brokerage, corporate services and property management as we continue to build out key markets, augment service lines and add new ones," Hennick said.
"As the commercial real estate industry gains strength on a global basis, markets leaders like Colliers International that have both the financial strength and ability to service clients worldwide have a distinct advantage over smaller, less capitalized competitors," Hennick said.
Colliers also consolidated much of its property back office functions in the eastern U.S. into one location in Charlotte, NC, resulting in higher costs for the second quarter.
"Based on pipeline levels, we will continue to see modest year-over-year revenue growth for the balance of the year," said Patterson. While the company will continue to recruit aggressively, it expects improved margins in the Americas for the balance of year, Patterson said.
HFF opened an office in Tampa in May focused on investment sales and an office in Austin, added numerous transaction professionals in existing offices, including Washington, D.C. Austin, Orange County, CA and Portland, OR. The firm has 177 transaction personnel, up 5.4% from a year ago.