There have been predictions on and off of a bottom to commercial real estate markets. Large buildings selling at big losses would increase. The pace of falling values would slow, hit zero, and start to turn up. Transaction numbers would increase. Vacancies start to drop.
But the real proof is in the selling. CBRE Group’s latest earnings offer evidence that office might be on its way back.
“U.S. office leasing delivered 28% revenue growth,” said chief financial officer Emma Giamartino during the recent earnings call. “Office occupiers are increasingly comfortable making long-term decisions, given improved return to office momentum and a healthy economic outlook.”
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The gateway markets of New York, San Francisco, Los Angeles, Chicago, Boston, and Washington, D.C. grew by about 30%. Some markets like Dallas, Seattle, and Atlanta grew faster. Others in the Midwest, including Cleveland, Pittsburgh, and Minneapolis “picked up considerably,” Giamartino added. “This gives us confidence that office leasing will continue to increase as activity has spread broadly.”
A concern of CBRE up to October, when the company reported Q3 earnings was the “durability of office leasing growth.” Just as a single month of data doesn’t necessarily mark a trend, neither does a quarter. There might have been circumstances or exogenous influences that caused an upsurge. An unusually large transaction might influence the collective results and still not be representative of them.
In this case, “New York led most of the office leasing recovery in 2024,” which would be fine for the region but not necessarily indicative of national office activity. However, “other markets accelerated substantially in the fourth quarter,” so other portions of the country also began to show significant improvement.
In addition to leasing, there was “a notable increase in office sales” in the U.S. Giamartino did note that it was off a “low base of activity,” so a higher percentage of growth could still mean existing sales being low.
The company’s mortgage origination business increased year-over-year by 37% with a 76% increase in origination fees being the driving force. “We saw a strong pickup in loan origination volume across financing sources, most notably from the GSEs and banks,” Giamartino said.
Answering a question, she noted that in capital markets, improved levels in Q4 were still not back to 2019 levels and were 40% of 2021. “ We expect a continued pick up in 2025,” she said. “We're very early in the year, but in the first six weeks of the year, we're seeing 20% growth in US sales activity. But we are being cautious because we don't know what the trajectory of rates will be through the remainder of the year.”
In response to a different question, CBRE chief executive officer Robert Sulentic said that the company “saw volume increase … over many markets.”
Sulentic also explained that after extensive conversations, clients said that their office space use had more or less stabilized and it was down about 8% per employee, which wasn’t as low as CBRE expected. “And the ones that weren't certain about how much office space they were going to use suggested it was more likely they would use more rather than less.”
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