The commercial real estate market is incredibly vast. The overall dollar value is estimated to be around $16 trillion. Meanwhile, the sector is on track to generate $951.1 billion in corporate profit this year, according to the latest commercial real estate data.
One company with its finger on the commercial real estate market's pulse is Cushman & Wakefield (NYSE: CWK). The leading global services firm's operations include property, facilities, and project management; leasing; capital markets; valuation; and other services. Here's a closer look at one of the leaders in providing real estate services.
Cushman & Wakefield profile
Cushman & Wakefield is one of the most recognizable brands in the commercial real estate sector. According to The Lipsey Company, the global real estate services company ranks second out of the top 25 commercial real estate companies. Meanwhile, it's the No. 1 global commercial real estate advisor, according to Euromoney. Overall, it's one of the top three firms in most of the world's major markets, as it has 53,000 employees working in 400 offices across 60 countries to meet the needs of its real estate clients around the world.
The real estate services company generated $6.4 billion of fee revenue in 2019. It breaks down like this:
- $2.949 billion, or 46%, came from its property, facilities, and project management activities. These services generate recurring revenue for the company.
- $1.939 billion, or 30%, came from leasing services. The company usually has high visibility into this revenue stream.
- $1.029 billion, or 16%, came from providing capital market services.
- $483 million, or 8%, came from providing valuations and other services. The company also usually has lots of visibility into this earnings stream.
Overall, 46% of its revenue is recurring, and 84% is recurring or highly visible. That helps cushion the blow of a real estate downturn, which can cause declines in nonrecurring revenue streams. Meanwhile, 68% of the company's revenue comes from the Americas region, 17% from Asia Pacific, and 15% from Europe, the Middle East, and Africa.
Cushman & Wakefield provides its services to two types of real estate clients: occupiers and owner/investors. These include:
- Occupier services: Integrated facilities management, tenant representation, portfolio administration, project and development services, and strategic consulting.
- Owner/investor services: Asset services, agency leasing, project and development services, valuation and advisory, and capital markets.
In a nutshell, Cushman & Wakefield assists companies with managing their real estate needs. It helps occupiers find and manage the right space for their operations while enabling owners and investors to maximize their real estate investments.
Cushman & Wakefield news
While Cushman & Wakefield generates lots of recurring, highly visible revenue, the real estate services company's financial results have some variability during a real estate market downturn. That was certainly the case in 2020 as the COVID-19 outbreak had a significant impact on the sector and company.
For example, Cushman & Wakefield's fee revenue declined 15% year over year during the third quarter. While its highly recurring property, facilities, and project management fee revenue was up 3%, leasing and capital markets revenue tumbled more than 30% compared to the prior-year period. Meanwhile, fee revenue from valuations and other services was down 12%. That pushed the company's fee revenue for the first nine months down 14% compared to the same period in 2019. A slight increase in property, facilities, and project management revenue couldn't offset meaningful declines in its three other main fee revenue streams.
The company took steps to offset some of this weakness by launching several initiatives to reduce costs. These actions should cut its annualized expenses by $400 million, with $300 million of that already realized in 2020. They are part of a broader strategic realignment the company launched in 2020 to become a leaner, faster, more efficient organization. Cushman & Wakefield aims to expand its margins by leveraging its growth to boost its bottom line faster than fee revenue.
One other aspect of that strategy is making in-fill acquisitions that expand and enhance its service offerings and geographic reach. The company continued that tactic in 2020 despite all the turbulence in the commercial real estate market. In March, it completed its acquisition of Reponse, a leading design and build contractor in France the company plans to rebrand as C&W Design + Build. That deal strengthened its business in France by adding a top in-house design and build capability to complement its other services.
Meanwhile, the company acquired Triad Commercial Properties in November. That deal bolstered its platform in the Carolinas region. These deals line up with the company's strategy of deploying the bulk of its after-tax cash flow on completing in-fill acquisitions that help plug the gaps in its service lines and geographies.
That strategy enables Cushman & Wakefield to further stand out from its competitors. It's one of three premium branded real estate service companies along with CBRE Group (NYSE: CBRE) and Jones Lang LaSalle (NYSE: JLL) with a broad scope of service offerings and a global reach. Those factors set this trio apart from competitors, with a narrower range of service offerings and a more regional geographic focus.
Cushman & Wakefield stock price
While Cushman & Wakefield has been around for more than a century, it's only been a public company since 2018. Unfortunately, it hasn't created value for investors during that time.