Staffers at CBRE could soon be the brokerage world’s latest victims of rising interest rates.
The commercial brokerage giant outlined a $400 million cost-reduction plan on Thursday as it adjusts to macroeconomic realities, and indicated that a large portion of those cuts will be achieved through layoffs.
On its third-quarter earnings call, CBRE said the cost reductions will be implemented over the next six months, and $300 million of the cuts will be permanent — with the vast majority coming from headcount reductions. The remaining $100 million of cost-cutting efforts are expected to be temporary until the business stabilizes.
In response to questions from The Real Deal, a CBRE spokesperson didn’t specify which types of employees will be affected or how much the company’s performance would have to improve to reverse course.
“We are working with the affected employees on an equitable transition,” the spokesperson said. CoStar News first reported the planned cuts.
While the Dallas-based brokerage handled a solid volume of transactions in July and August, it cited a significant post-Labor Day pause in both property sales and loan originations. The company’s Americas Capital Markets revenue, which includes sales and debt origination, was flat in July and August on a year-over-year basis, then plummeted 43 percent in September.
“We are getting hit harder and faster than we were expecting 90 days ago, and we’re expecting the recession to impact our business for longer than we did 90 days ago,” the company’s CFO and CIO Emma Giamartino said.
The slowdown coincided with the Federal Reserve’s latest interest rate hikes intended to slow the flow of cash across the economy as regulators aim to reel in inflation. The cuts will be made in addition to walking back discretionary bonuses, incentive compensation, profit sharing and commissions, the company said.
The decline in business was more rapid than the brokerage expected during the second quarter, when it was preparing for a more challenging market but not to the degree it’s experienced so far.
With the $400 million target for spending cuts, CBRE has identified $175 million in reductions by the end of the year, and a significant majority of the remainder to be completed by the end of the first quarter of 2023.
Deal volume is expected to ramp back up toward the end of next year, Giamartino said. And leasing volume was a bright spot in the quarter, up 14 percent from last year, with a positive near-term outlook, CEO Bob Sulentic said.
“In contrast with sales and financing, leasing performed very well. Revenue was up across all property types, led by office,” he said.
The announcements of staffing reductions and downward revisions for earnings could be a harbinger for the weeks to come in the commercial brokerage industry as CBRE rivals JLL, Cushman & Wakefield and Newmark report their earnings.
— Sam Lounsberry
Read more
Commercial
New York
Inside CBRE: How much do pros at the brokerage powerhouse make?