CBRE, the world's biggest real estate services firm, raised its earnings outlook for the year after posting double-digit growth in second-quarter revenue.
The first major U.S.-based firm to report its results for the three months ended June 30 said Tuesday it expects to "set a new earnings peak this year," only two years after a real estate downturn had it cutting costs. Its revenue gained 16% in the second quarter to $9.8 billion.
"Despite uncertainty in the macro environment, occupier and investor clients largely proceeded with executing their plans,” Chair and CEO Bob Sulentic told investors during a conference call to discuss the results.
CBRE businesses including facilities and property management, loan servicing and valuations posted 17% revenue growth to $8.1 billion, surpassing a 15% increase to $1.7 billion for areas including leasing and property sales, Sulentic said. The results come after the firm has made an effort to diversify its business lines beyond having the world's largest property brokerage.
In light of the firm's outperformance in the first half of the year and its pipelines across its businesses, the firm raised its core per-share earnings outlook to a range of $6.10 to $6.20 from the prior projection of $5.80 to $6.10, reflecting a 20% growth at the midpoint of the span.
Chief Financial Officer Emma Giamartino said the revised outlook was made under the assumption the economy remains resilient, with limited risk of a recession in the second half of the year.
As for elevated interest rates, Sulentic told analysts clients would like to see an interest rate cut, but he isn't waiting for any: "We're seeing lots of financing activity and significantly escalated sales activity, and we expect that to continue for the rest of the year."
He added that the firm's prior expectations that the current historically elevated interest rates or shifting tariff policies could slow its business haven't come to pass: "Right now, buyers and sellers are kind of powering through that, and the feeling is that things are going relatively well."
Leasing rebound
Global leasing revenue grew 13% in the quarter on a U.S. dollar basis with double-digit growth across all major regions, the firm said. The growth in U.S. leasing was tied to larger leases and broad-based growth across the country, Giamartino told investors, with an increased momentum outside of gateway cities.
The growth in U.S. leasing for the quarter was led by a 15% increase in office leasing due to larger leases and "broad-based growth," across the country, Giamartino said, adding the firm is seeing increased momentum for leasing outside of gateway cities.
Sulentic added that leasing momentum for office buildings is expanding beyond the properties like those on New York's Park Avenue to include second-tier and smaller markets.
There is "no doubt there's some element of a return to mean," with the pandemic effects "in the rearview mirror," Sulentic told investors. "Secondly, we know from the work we do with our corporate clients here in the U.S. and around the world that they really are serious about using office space to get their employees connected, more productive, more excited about the companies they work for, and that's been a big plus for us in that business."
He said CBRE expects office leasing to remain strong with the biggest challenge is the supply in certain areas.
Likewise, U.S. industrial leasing also posted a 15% increase tied to leases from third-party logistics providers.
Comparative to U.S. leasing, Sulentic said there is "a little more choppiness," in Europe, but that expectations remain position and are "more positive than they were 90 days ago," in speaking of the firm's prior quarter results.
Strong pipelines
At the end of the second quarter, CBRE had about $4.7 billion in total liquidity, including $1.4 billion in cash and the ability to borrow $3.3 billion under its revolving credit facilities. Liquidity increased by $1.2 billion from about $3.5 billion at the end of the first quarter in a reflection of new financing, the firm said.
Global sales activity rose 19% in the second quarter, accelerating from the prior quarter, the firm said. This jump was led by a 25% growth of U.S. sales led by data centers, retail and office, executives told investors.
Sulentic said he expects sales activity to pick up in the second half of the year, with that already beginning to unfold in July.
"We are expecting continued strength in U.S. sales in the back half of the year, but that we are seeing some slow down in sales in Europe," he added.
The bid-ask spread has narrowed or disappeared with "a lot of capital out there," Sulentic said, with real estate firms seeking to buy real estate and there being an interest from owners who haven't been able to sell in recent years to trade real estate.
"We anticipate most of our asset sales to occur in the fourth quarter, including a few data center development sites," he added.