Credit: Shutterstock photoSome countries in Europe are teetering on recession again. China's growth has slowed. Brazil's giant engine sputtered.
The U.S., however, is on the upswing -- the annual rate of economic growth between July and September was revised upward to 3.9%.
"World economies are uneven and choppy," said Bob Sulentic, chief executive ofCBRE Group ( CBG ), the world's largest commercial real estate service and investment company.
CBRE's financial results are anything but uneven and choppy -- or slowing. Almost all of its businesses in every part of the world are showing double-digit revenue and profit growth.
"The commercial real estate markets are doing better than the economies, without a doubt," Sulentic said in an interview with IBD.
One big reason is that capital is flowing into commercial real estate in all regions of the world, independent of underlying economies, he says.
"It has increasingly become an accepted investment class and has outperformed equities over the last 10 years," he said. "And yields are good."
CBRE benefits when capital is invested in commercial real estate. It provides investment and brokerage services, financing and even development work.
To help boost new business and serve the expansionary efforts of existing clients, CBRE hired several hundred brokers in the last two years, Sulentic says. He adds that it was an "unprecedented" recruitment effort.
"It's paying off now, and we think it will pay off for the next several years," he said.
Recession In Rearview Mirror
Following a tough two years during the global economic downturn, CBRE's revenue and earnings have grown steadily since 2010. Analysts expect earnings to climb 20% this year to $1.71 per share on $8.9 billion in revenue, up 24% over a year earlier.
Third-quarter revenue jumped 31% to $2.3 billion, the fifth straight quarter of double-digit growth. Earnings per share rose 33% to 40 cents, the eighth straight quarter of double-digit growth.
With two months left in 2014 and noting "strong momentum across our business lines," the company raised its full-year earnings forecast to $1.65-$1.70 per share from $1.60-$1.65 previously.
"CBRE Group's third-quarter earnings results validate our positive outlook on the property service sector," wrote Mitch Germain, an analyst with JMP Securities.
The company "continues to see large occupiers demonstrate high demand for integrated services," he noted.
Corporations, government enterprises, hospitals and other large occupiers of space worldwide are increasingly looking to a single real estate service provider to handle their real estate needs on a contractual basis, Sulentic says.
With worldwide offices and staff, CBRE and No. 2Jones Lang LaSalle ( JLL ), known by its brand name JLL, are two of the biggest beneficiaries of the outsourcing trend.
CBRE's contractual revenue made up 51% of total revenue in the third quarter, up from 48% a year earlier. Global occupier outsourcing revenue rose 18% to $595 million, not including a big acquisition last December. Including that acquisition -- U.K.-based Norland Managed Services -- it climbed 61% to $811 million.
"We're taking market share in most regions we operate in," Sulentic said.
Yet commercial real estate outsourcing is still in the "early days," with only about 25%-30% penetration of large corporate users of space, noted JPMorgan analysts in a recent report.
CBRE's management views leasing as recurring revenue in that leases expire every five years or so.
The firm's global leasing revenue in Q3 rose 15% vs. the prior year to $580 million, the fifth straight quarter of double-digit growth.
Leasing was led by an 18% gain in the Americas, largely the U.S. The company noted in its Q3 report that it continues to log "strong market-share gains" in the Americas.
Revenue from global property sales in the quarter increased 33% to $405 million.
Nearly 60% of CBRE's revenue is generated in the Americas, with most coming from the U.S. That's in contrast to JLL, which derives more of its revenue outside the U.S.
Goldman Sachs analysts have noted that they prefer CBRE's stock to JLL's on a relative basis because CBRE has more exposure to the U.S. and capital markets.
CBRE's revenue in the Americas was up 20% in the third quarter vs. a year earlier to $1.3 billion, a relatively strong showing considering that the region is its largest. It was the best growth rate in the region in more than three years.
"The U.S. is the company's biggest earnings contributor, and office is an outsized component," especially on the leasing side, wrote the JPMorgan analysts. "If job growth continues, we think much stronger rent growth should ensue."
Job Gains Go To Work
The U.S. added 321,000 new jobs in November, the Labor Department reported. It was the largest gain in nearly three years, capping a year of job gains that are being compared to the boom years of the late 1990s.
"Job growth is a huge driver for our business," Sulentic said, noting that it has a domino effect in leasing, sales and development.
Real estate investments in Japan and Australia led growth in Asia-Pacific. The region saw revenue grow 25% to $253.7 million.
Europe is a bigger contributor. Pent-up demand for real estate in the region helped the company's business there, Sulentic says. Capital flow into the U.K. was especially strong.
Third-quarter revenue in the company's Europe, Middle East and Africa region -- primarily Europe -- jumped 25% from a year earlier to $358 million, not including revenue from the Norland acquisition. Including Norland, revenue in the region grew 101% to $574.5 million.
Norland provides technical engineering services for commercial buildings. It was the biggest of 11 acquisitions that CBRE made in 2013.
CBRE has made 10 small acquisitions so far this year to round out its capabilities. The most recent was IVI International, a property consulting firm based in White Plains, N.Y.
One CBRE business did slow: the company's investment-management unit. It took in $105 million in Q3, below the $127.3 million a year earlier. Last year's same quarter included carried-interest revenue from large asset sales not repeated this year.
But capital raising activity continued at a "brisk pace" this year, Sulentic told analysts in a conference call. About $9 billion of capital was raised in the 12 months ending September 30.
Sulentic doesn't expect the current commercial real estate cycle to lose momentum any time soon.
"We think we have several years to run," Sultenic said. "The economies of the world aren't booming yet. It's not like we are deep into the recovery."
CBRE is the largest company by market capitalization in IBD's Real Estate-Development/Operations industry group. It's followed in size by JLL ( featured in The New America Nov. 28), thenRealogy Holdings ( RLGY ),Howard Hughes ( HHC ) andMacquarie Infrastructure ( MIC ).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
