Real Estate

Commercial Brokerages Cut Costs, Diversify Amid Market Downturn

North America's top commercial real estate brokerages cut costs and diversify amid economic challenges and a transaction slowdown.

By Doug Elli

5/15, 18:09 EDT
CBRE Group Inc
Jones Lang LaSalle Incorporated

Key Takeaway

  • Major commercial real estate brokerages, including Marcus & Millichap, CBRE, and JLL, are implementing layoffs and cost-cutting measures amid lower transaction volumes due to high interest rates.
  • Despite the cutbacks, firms like JLL report profit gains from efficiency improvements and diversified services beyond traditional sales.
  • Brokerages are adapting by focusing on management and consultative services while awaiting a market rebound, with selective investments in talent and acquisitions.

Navigating the Storm: Brokerages Adapt to Market Headwinds

In a year marked by economic turbulence, North America's largest commercial real estate brokerages have embarked on a journey of strategic cost management, responding to the challenges posed by higher interest rates and a consequent slowdown in transactions. Firms such as Marcus & Millichap, CBRE, JLL, Cushman & Wakefield, Newmark, and Colliers have initiated cost-cutting measures, including layoffs, in a bid to navigate through the rough waters of the current financial climate. This trend of "precision cost trimming," as reported by CoStar News, underscores a broader narrative of resilience and adaptation within the industry.

The Ripple Effect of Rising Interest Rates

The backdrop to these strategic adjustments is a landscape shaped by rising interest rates, which have significantly dampened the volume of commercial sales, eroding profits in the process. Marcus & Millichap's experience is emblematic of the sector's challenges, with the firm reporting its fourth consecutive quarterly loss despite reducing costs by 5 percent from the previous year. The firm's struggle to expand its sales force amidst high turnover, particularly among newer brokers, highlights the profound impact of market disruptions on the brokerage business model.

A Glimmer of Hope Amidst Adversity

Despite these challenges, there are signs of resilience and potential pathways to recovery. JLL, for instance, reported a notable profit in the first quarter, buoyed by cost cuts and growth in leasing and other resilient business segments. Similarly, Cushman & Wakefield's earnings rose by 29 percent over the prior-year quarter, driven by lower expenses and higher leasing revenue. These successes suggest that, while the road ahead may be fraught with challenges, strategic cost management and diversification of services can pave the way for stability and growth.

Antitrust Settlements: A Parallel Narrative

The commercial brokerage sector's cost-cutting narrative runs parallel to a series of antitrust settlements shaking the residential brokerage industry. Firms like Anywhere Real Estate, Redfin, REMAX, and Keller Williams have faced substantial financial losses, further compounded by multi-million dollar settlements related to class-action claims over broker commissions. This wave of legal and financial challenges, set against the backdrop of rising mortgage rates and low inventory, adds another layer of complexity to the brokerage industry's landscape.

Strategic Adaptation and the Road Ahead

The brokerage industry's response to these multifaceted challenges reflects a broader theme of strategic adaptation in the face of adversity. From commercial to residential sectors, firms are recalibrating their strategies, trimming costs, and exploring new avenues for growth and efficiency. The emphasis on selective investment in talent and acquisitions, as seen in the commercial sector, mirrors a similar sentiment of cautious optimism and strategic planning among residential brokerages navigating antitrust settlements.

Street Views

  • Suryansh Sharma, Morningstar (Neutral on Cushman & Wakefield):

    "Keeping a rein on expenses is essential, given the current macroeconomic challenges... management has projected that cost and efficiency initiatives will mostly offset an increase in inflation costs this year."

Management Quotes

  • Robert Shibuya, CEO of Mohr Partners:

    "There’s a lot of what I would call ‘quiet cutting’ going on right now. I know that all of the big brokerages are still cutting because their people have been calling me for work."

  • Hessam Nadji, CEO of Marcus & Millichap:

    "The last three- to four-year period has provided nothing resembling a typical market environment, in which we train people, mentor people and they learn the fundamentals of brokerage. This market disruption is the primary reason that skill sets aren’t developing in a way that we’re used to seeing."

  • Karen Brennan, CFO of JLL:

    "[The changes helped drive] a $66.1 million profit in the first quarter, compared with a $9.2 million loss in the year-earlier period."

  • Christian Ulbrich, CEO of JLL:

    "As we strengthen our service and product offerings, we will selectively add people and capabilities, both organically and through very targeted [mergers and acquisitions]."