CBRE’s Capital Markets Revenue Declines Sharply in Q4

Narrow-moat-rated CBRE Group’s CBRE fourth-quarter results were largely in line with our expectations, as rising interest rates weighed on the capital markets business but the outsourcing business remained resilient. The company reported core earnings per share of $1.33 in the fourth quarter, beating the FactSet consensus estimate of $1.19. Core EPS declined 26% from the year-ago quarter. Companywide net revenue was reported at $5.0 billion, an 11% decrease from the same quarter last year. Core EBITDA came in at $668 million, about 30% lower compared with the previous year. We are maintaining our $90 fair value estimate after incorporating fourth-quarter results.

Capital markets revenue declined approximately 46% due to higher interest rates and the constrained money supply, whereas lackluster demand for office resulted in a 7% decline in leasing revenue. This resulted in a 21% decline in total advisory net revenue. We expect capital markets revenue to be affected significantly more than leasing revenue. Property sales transaction volume was reported at 77% of 2019 levels during the fourth quarter, while leasing volume is still slightly above prepandemic levels. The operating leverage in the advisory business resulted in margin contracting about 320 basis points in the quarter. Management expects total advisory revenue to be down by midsingle digits in 2023 with leasing down by mid- to high single digits and capital markets revenue down by a midteens percentage.

The global workplace solutions segment was the bright spot in the quarter, as net revenue grew 12% on an organic basis. Segment operating profit grew 30% year over year due to revenue growth and a 170-basis-point business-mix-driven margin expansion. Management has guided for low-double-digit profit growth in the outsourcing business in 2023.