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6 Key Takeaways From CBRE's Earnings Call

Aug 04, 2020 by Marc Rapport

CBRE Group (NYSE: CBRE) reported a sharp falloff in business and income in the second quarter as a result of the pandemic, knocking its stock for a bit of a loop. That's not a big surprise given that the commercial real estate services conglomerate has exposure in hundreds of global markets across a wide range of activities.

The company's earnings report, presentation, and call lay out the details, but here we'd like to highlight a few takeaways of interest to property owners, managers, and investors who are making their own decisions about what to do now -- and next -- as the short- and long-term effects of COVID-19 emerge.

1. Declining activity, new uncertainty about a property's worth

Leasing and sales activity fell off sharply, and investment capital is "moving to the sidelines" as investors begin the process of price discovery, says Bob Sulentic, CBRE's president and CEO. (That was reflected in the drop in valuation services revenue. You don't need to pay someone to tell you what something's worth if you're not planning to buy or sell it soon.)

2. Short-term leases when they can get them

Occupiers are seeking short-term lease renewals when they can get them because of the uncertainty about how office space will be used going forward.

3. Hybrid work models that provide flexibility while "fostering culture"

Most companies will give employees greater flexibility in choosing to work in-house or remotely. Hybrid work models that combine remote and in-person work will keep the physical office in play as "vitally important" to "fostering culture and collaboration and attracting talent."

4. A retreat from office densification

But the trend toward densification will likely reverse as more physical space is allotted per employee and less emphasis is put on assigning people to work close together in large, open areas.

5. Industrial leasing and multifamily lending stood out in the crowd

While CBRE's second quarter leasing revenue overall fell sharply -- by 43% year over year in the U.S. and 20% to 25% in Europe -- industrial leasing as a segment was only off 10%, speaking to its resiliency.

Multifamily loan servicing also proved to be resilient, with very few forbearances reported there, and the company remains confident in its stream of revenue from its $245 billion residential mortgage servicing business through Fannie Mae and Freddie Mac. That's a big sample size, so it could give confidence to retail investors in those ventures.

6. They're serious about diversity

CBRE just appointed its first chief diversity officer. Longtime CBRE executive Tim Dismond joins the 12-member Global Executive Committee as a direct report to the CEO. The company says it's committed to providing the resources and support to build on the gains it's made in growing ethnic and gender diversity in its brokerage and management ranks over the past few years.

Knowing their strategy can help your tactics

"The pandemic has elevated the importance of workplace strategy on corporate agendas," Sulentic says.

Property managers who can keep their finger on that pulse may well have a step ahead of the game when it comes to configuring office space to meet new needs and knowing when and how to invest in it, or the larger market, in the first place.

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Marc Rapport has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.