US property brokers falter as real estate boom seen cooling
NEW YORK: Commercial-property brokerages, the stars among U.S. real estate stocks this year, are losing luster as the booming market for deals shows signs of cooling.
CBRE Group Inc. and Jones Lang LaSalle Inc., the global titans of property services, slid the most since 2011 on Monday amid a rout in equities, bringing losses this month to 14 percent and 16 percent, respectively. HFF Inc. has tumbled 20 percent in August and Marcus & Millichap Inc. is down 17 percent.
The prospect of a slowdown in real estate transactions after a five-year recovery is stoking concern that profit growth will weaken at the big brokerages, which make their money on services from selling buildings to handling leases. Rising interest rates may limit gains in property prices, while banks and other lenders to the market are decelerating their rate of new credit expansion.
Much of the earnings growth at the companies "is in the rearview mirror at this point," said Brad Burke, an analyst at Goldman Sachs Group Inc., who cut his ratings on JLL, HFF and Marcus & Millichap this month while keeping CBRE at a buy. "This is a natural maturing of the real estate cycle."
CBRE, the world's largest brokerage, slid 7 percent Monday to $32.47, the biggest decline in four years. JLL dropped 8.2 percent to $149.28, the most since November 2011. Before this month, CBRE had gained 11 percent for the year, while JLL jumped 19 percent. In contrast, the Bloomberg index of real estate investment trusts had lost 2.6 percent.
While stocks worldwide are falling, the broker losses this month have been worse than other market measures. The REIT gauge is down 5.7 percent for August, while the Standard & Poor's 500 Index has fallen 10 percent.
Commercial real estate deals in the U.S. rose 23 percent from a year earlier in the second quarter, slowing from a 49 percent surge in the first, according to Real Capital Analytics Inc. First-half volume of $255.1 billion was "front-loaded" by several major sales closing early in the year, including two big industrial warehouse portfolios, Manhattan's Waldorf Astoria hotel, and Willis Tower in Chicago, the research firm said. "We have had a very rich transaction market for some time, so the rate of growth in activity has necessarily begun to taper off," said Sam Chandan, founder and chief economist of Chandan Economics, a provider of real estate data and analysis.