Commercial Real Estate Service Firms Are Better Prepared for the Upcoming Economic Slowdown

The commercial real estate, or CRE, service industry has overseen a period of rapid growth since the nadir of the real estate-driven financial crisis of 2007. The industry recovered rapidly since the pandemic with record profitability in 2021 on the back of low interest rates, increased availability of capital, strong real estate valuations, and an upbeat economic environment. However, investors are increasingly worried about the prospects of CRE service firms amid the currently challenging macroeconomic environment with rapidly increasing interest rates and a slowing economy. We think that CRE service firms are in much better shape to weather the upcoming economic downturn with strong balance sheets and an ability to better control their expenses. In addition to this, some of the companies in the sector have materially increased their earnings contributions from business lines like facility management, project management, and loan servicing that are less cyclical than their legacy brokerage business over the past decade.