Despite these challenges, the increased adoption of outsourced real estate services by companies and the acceleration of certain trends are creating scope for these industry participants to grow. Strategic technological investments provide a competitive advantage. Companies like CBRE Group, Inc. CBRE, Jones Lang LaSalle Incorporated JLL and Kennedy-Wilson Holdings, Inc. KW are set to benefit from these favorable trends.
About the Industry
The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facility management, project management, transaction and consulting services, among others. However, real estate investment trusts or REITs are excluded from this group. Economic trends and government policies impact the real estate market (both global and regional), which determines the industry’s performance. Economic activity, employment growth, office-based employment, interest-rate levels, costs and availability of credit, tax and regulatory policies, and the geopolitical environment are the major factors shaping the real estate market’s fate. Also, pandemic-induced public health challenges and geopolitical issues have affected property sales and the leasing lines of businesses.
What's Shaping the Real Estate Operations Industry's Future?
Geopolitical Unrest to Affect the Industry: The industry’s performance is likely to bear the brunt of geopolitical unrest and macroeconomic challenges. The Russia-Ukraine war and the Israel-Hamas war are examples of conflicts that fuel regional instability, significantly impacting energy and food security. This situation has escalated supply-chain disruption and led to increased inflation rates and other macroeconomic challenges worldwide. The consideration of new tariffs on imports from mainland China could have a substantial effect on trade policy. Moreover, economists expect tariffs and other Trump policies to be inflationary. The Federal Reserve might need to maintain elevated interest rates for a longer period than previously expected. Amid such an environment, clients are likely to adopt a cautious approach. As a result, investors’ desire for greater price discovery will cause a delay in the closing timeline for transactions.
Certain Real Estate Categories’ Demand Hurt: The pandemic has resulted in significant shifts in the utilization of various categories of commercial real estate. While companies are promoting the return to office, this transition is gradual, which is hindering tenants’ confidence in long-term commitments. As such, pre-pandemic office occupancy levels will likely remain elusive in the near or intermediate term. Amid a volatile environment and geopolitical issues, customers remain focused on cost controls and delay their decision-making with respect to leasing. Additionally, hotel real estate growth has been hindered due to moderation in domestic leisure transient demand, and in-person interactions have not fully rebounded to pre-pandemic norms.
Outsourcing of Real Estate Needs to Remain Strong: Occupiers of real estate, such as corporations, public sector entities, healthcare providers, and those in finance, industry, life sciences and technology, are increasingly preferring to outsource their real estate needs. They are relying on third-party real estate experts to enhance execution and efficiency. Organizations are seeking strategic advice to reimagine their workplaces and workstyles to foster culture, attract talent and improve performance. These developments are creating opportunities for participants in the real estate operations industry. Major players in the industry are capitalizing on this shift, securing new clients and expanding relationships with existing ones. Also, for this industry’s constituent companies, investments in technology will remain the major focus as it helps drive efficiency, deliver differentiated client services and support market share growth.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #172, which places it in the bottom 31% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that of late, analysts are losing confidence in this group’s growth potential. Since April 2024, the industry’s earnings per share estimates for 2024 and 2025 have moved 2.8% and 9% south, respectively.
However, before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms the Sector & Underperforms S&P 500
The Zacks Real Estate Operations industry has outperformed the broader Zacks Finance sector while underperforming the S&P 500 composite over the past year.
The industry has advanced 28.6% during this period compared with the broader Finance sector’s return of 23.7%. However, it underperformed the S&P 500’s growth of 29.1%.
One-Year Price Performance
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Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings, which is a commonly used multiple for valuing Real Estate Operations stocks, we see that the industry is currently trading at 17.87X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 22.62X. The industry is trading above the Finance sector’s forward 12-month P/E of 17.44X. This is shown in the chart below.
Forward 12-Month Price-To-Earnings Ratio
Over the last five years, the industry has traded as high as 32.49X and as low as 11.45X, with a median of 17.86X.
3 Real Estate - Operation Stocks Trying to Survive the Industry Challenges
CBRE Group: Headquartered in Dallas, TX, CBRE Group is a commercial real estate services and investment firm, offering a wide range of services to tenants, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estates in all major metropolitan areas across the globe.
The company has opted for a better balanced and more resilient business model in the past years and continues to gain from its diversification efforts. The outsourcing business remains healthy, and its pipeline is likely to remain elevated, offering it scope for growth. Strategic buyouts and technology investments are expected to drive its performance.
CBRE Group currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) has moved 1.6% upward over the past week to $4.99. The company’s shares have gained 16% over the past three months.
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Jones Lang LaSalle Incorporated: Headquartered in Chicago, Jones Lang LaSalle — popularly known as JLL — is a leading full-service real estate firm that provides corporate, financial and investment management services to corporations and other real estate owners, users and investors worldwide.
The company’s diverse range of real estate products and service offerings, along with its strategic investments, give it a strong footing. The strength of its resilient lines of business and a favorable outsourcing trend have supported the company so far. Also, its data-driven and technology platform is leading to increased client engagements, which is encouraging.
Jones Lang LaSalle carries a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the company’s 2024 EPS has been revised 1.5% upward over the past month to $13.37. Its shares have appreciated 8.8% in the past three months.
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Kennedy Wilson: Headquartered in Beverly Hills, CA, Kennedy Wilson is a global real estate investment company that invests in high-growth markets across the United States, the U.K. and Ireland. KW is engaged in the ownership, operation and investment in real estate on its own and through its investment management platform.
The company is expected to benefit from the continued growth of its investment management business and healthy demand for its high-quality multifamily and commercial portfolio.
Kennedy Wilson carries a Zacks Rank #3 (Hold) at present. The Zacks Consensus Estimate for the company’s current-year EPS has been revised 1.4% upward over the past month to $3.00. The company’s shares have increased 14.2% in the past six months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
