Colliers Expects Steep Declines in Real Estate Activity to Last Through 2023

Article originally posted on CoStar on May 2, 2023

Executives for Toronto-Based Brokerage Cut Outlook Amid Weaker Leasing, Capital Markets

Executives for commercial real estate brokerage Colliers said they now expect declines in sales and financing to last through the end of the year amid concerns about limited debt availability and property valuations.

The Toronto-based firm’s revenue fell 3% to $966 million in the first quarter of the year from the year-earlier quarter, including a 9% drop in the Americas, its largest market, executives said in discussing the firm’s earnings on Tuesday.

Most of the decline was caused by reduced capital markets deal activity across all property types, Colliers CEO Jay Hennick said. Leasing revenue increased slightly and capital markets income declined 42% in the quarter, Hennick said.

“Since our initial outlook 90 days ago, we’ve seen higher interest rates and challenging debt markets impact transaction volumes,” Hennick said. “Lower transaction volumes are now expected to persist for the remainder of the year. With the additional stress on the banking system and increasing limitations on debt availability, there’s more uncertainty around property valuations.”

Colliers, the fourth-largest brokerage ranked by revenue behind CBRE Group Inc., JLL and Cushman & Wakefield, is the second major commercial real estate services firm to report financial results for the quarter. CBRE reported a sharp decline in its first-quarter earnings and a 1% increase in revenue to $7.4 billion from the year-earlier quarter.

Colliers executives highlighted two bright spots in the quarter, a year-over-year 40% jump in the company’s investment management operations and a 13% increase in its property management and consulting operations in the quarter. Hennick noted that the operations represent more than 60% of the company’s adjusted earnings.

“Having a large proportion of our earnings coming from these revenue streams highlights the transformation of Colliers into a much more balanced, diversified and resilient company,” Hennick said.

Colliers, similar to its larger rival CBRE, plans to deploy more capital to acquire companies as some businesses seek buyers in a slowing economy.

CBRE executives said last week that the company plans to spend $5.5 billion on acquisitions, more than double the capital it deployed in the past year.

Hennick noted that Colliers just acquired Craig & Rhodes Pty Limited, a engineering, design and survey firm in Australia. Colliers last month also acquired a majority stake in Greenstone Group Ltd., a project management and property advisory firm in Auckland, New Zealand.

“We believe that higher interest rates and tighter access to capital gives us a tremendous advantage in completing acquisitions, recruiting key talent and scaling in our newer growth engines,” Hennick said.

JLL and Cushman & Wakefield are scheduled to report financial results on Thursday. Newmark and Marcus & Millichap, the last of the largest real estate brokerages to report results, are scheduled to release earnings on Friday.