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  • Writer's pictureLee ISG

Real Estate Brokerage Earnings Reflect Rising Influence of Coworking

Strong Leasing and Slowing Property Sales Signal Supply, Demand Equilibrium

The four largest publicly traded real estate services companies are reporting revenue growth in a property market that's benefiting from added leasing amid the growth of coworking, largely balancing out between supply and demand as the economy approaches a record expansion.

Colliers International Group Inc., Jones Lang Lasalle, CBRE Group Inc. and Cushman & Wakefield each reported revenue growth fueled by robust income from leasing as well as a modest slowdown in investment sales and generally steady growth prospects for real estate markets through at least the end of the year.

The U.S. economy is poised to reach its longest growth stretch on record in July amid low unemployment, conditions that benefit commercial property developers.

“We remain bullish on the commercial real estate supply/demand dynamics,” Douglas Harter, equity analyst with Credit Suisse, said in a note to clients on the earnings.

Cushman & Wakefield Chief Executive Brett White told analysts during an earnings call that global economic growth forecast at 3.3% for this year, along with healthy increases in U.S. jobs, shows the Chicago -based brokerage that global appetite for commercial real estate remains strong.

"Our strong first-quarter performance combined with favorable economic conditions is a very good start to 2019," White said.

Coworking and flexible office space played a major role in bolstering workplace leasing, accounting for more than 20% of Jones Lang LaSalle’s growth in fees from leases. CBRE executives reported a smaller but still significant impact from coworking, about one-tenth of its total leasing growth.

“Much of the leasing activity was driven by the tech sector and the coworking providers, especially in New York, northwest, and the mid-Atlantic markets,” said JLL President and Chief Executive Christian Ulbrich. “This is something which we believe will continue to be the case.”

Ulbrich said coworking is “very advantageous” for office users and JLL’s corporate clients especially like the flexibility.

“What we expect is that there will be a pretty fierce price competition coming into that market,” Ulbrich added. “But we are a service provider and we are not offering that service, so for the time being we see that we have lots of opportunity to identify new clients and help them with our services.”

The companies all reported increases in fees from advisory and property, facilities and investment management services, which help provide steady revenue and cross-selling opportunities when sales and leasing activity eventually soften and the economy slows.

Colliers Chief Executive Jay Hennick said last year’s acquisition of Harrison Street Capital, which gave Colliers a total of $28 billion in assets under management, is helping drive business growth. JLL executives said the company's acquisition of HFF Inc. eventually will bolster revenue and earnings.

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