Widespread vaccination and an improving economy raise hopes for the Zacks Real Estate Operations industry constituents. Also, the rising tendency of outsourcing of real estate needs by companies and the acceleration of certain trends amid the pandemic are creating scope for these industry participants to bank on, while technological investments are creating a competitive edge. As such, CBRE Group, Inc. CBRE, Jones Lang LaSalle Incorporated JLL and Cushman & Wakefield plc CWK are likely to benefit from these favorable trends. However, the health crisis remains a threat as new strains spread. Limited business travel and face-to-face business dealings and a large chunk of workers remaining out of their offices might prevail as the operating challenges in the near term.
About the Industry
The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facilities management, project management, transaction and consulting services, among others. Nonetheless, 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, in turn, determine this industry’s performance. Economic activity, employment growth, office-based employment, interest-rate levels, cost and availability of credit, tax and regulatory policies, as well as the geo-political environment are the major factors shaping up the real estate market’s fate. Pandemic-induced public health challenges and mayhem too have impacted property sales and leasing lines of businesses.
What’s Shaping the Real Estate – Operations Industry’s Future?
Vaccination Drive, Macroeconomic Recovery to Steer Industry Rebound: Acceleration of vaccination programs and government stimulus programs across the globe are likely to support the recovery, with anticipation of healthy growth in the upcoming period. Notably, for the U.S. commercial property market, 2021 proved robust. Deal volumes in the fourth quarter surpassed prior records and pricing achieved new highs, per a report from Real Capital Analytics. Moreover, there has been a rebound in global capital markets transaction volumes. With increased competition and ample capital being directed toward commercial real estate, pricing is getting a boost. While a number of commercial real estate segments showing operational resilience have already attracted capital flows, the asset categories that were considered not favorable during the earlier months of the pandemic, are now experiencing an increase in capital flow, which is encouraging.
COVID-19 pandemic accelerating trends and creating opportunities: The pandemic has been accelerating a number of trends that were present prior to its onset, as well as compelling businesses to transform. Specifically, the global industrial leasing activity, backed by e-retailing, has been robust, proving this asset type’s resiliency amid the pandemic. Also, a number of workplace trends that were present before the pandemic, such as experiential workspaces, outsourced real estate functions, together with a greater-than-before focus on employee well-being, have gained prominence. These are creating scope for the industry participants to bank on and opportunities for players with broad diversifications across property types, geography, business lines and clients to excel.
Outsourcing of real estate needs to gather more steam: Occupiers of real estate, such as corporations, public sector entities, health-care providers along with financial services, industrial, life sciences, and technology clients and others, have been increasingly opting for the outsourcing of real estate needs, thereby, depending on the expertise of third-party real estate specialists for execution and efficiency improvements. This is opening up prospects for constituents of the real estate operations industry. The large players are capitalizing on this trend, with both existing as well as new client wins and expansions.
Technology Investments Offer Competitive Edge: The pandemic has intensified technological disruptions in the commercial real estate industry. Amid this, big players in this industry are aiming for process improvements and leveraging their technology platform. These moves drive efficiency, deliver differentiated client services, help in market-share gains, and aid in differentiating from peers. Hence, for this industry’s constituent companies, investments in technology will remain the major focus.
COVID-19 Crisis, New Strains Challenge Industry’s Recovery: Although in 2021, the effects of COVID-19 eased significantly, the health crisis remains a threat as new strains spread. Also, in certain parts of the globe, the administration of vaccine is slow. Therefore, with limited business travel and face-to-face business dealings, as well as a large chunk of workers being still out of their offices, the operating challenges are expected to continue in the upcoming period. Also, any cautious attitude of clients/corporate occupiers might cause delays in real estate decisions in the days to come. Moreover, any decline in the value of commercial real estate and in rents, due to the global health crisis, will dent the constituent company’s revenues from property commissions.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #68, which places it at the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that analysts are gaining confidence, of late, in this group’s growth potential.
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 Lags on Stock Market Performance
The Zacks Real Estate Operations industry has underperformed the broader Zacks Finance sector as well as the S&P 500 composite over the past year.
The industry has declined 21.4%, during this period, as against the S&P 500’s rally of 15.1%. Meanwhile, the broader Finance sector has gained 17%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-EPS ratio, which is a commonly-used multiple for valuing Real Estate Operations stocks, we see that the industry is currently trading at 25.97X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 20.19X. Also, the industry is trading above the Finance sector’s forward 12-month P/E of 16.37X. 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 34.40X, as low as 11.75X, with a median of 16.31X.
3 Real Estate – Operation Stocks Moving Ahead of the Pack
CBRE Group, Inc.: 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 continues to benefit from the expansion of its resilient contractual businesses. Furthermore, a strong balance sheet supports its acquisition moves aimed at enhancing the company’s service offerings and geographic reach.
CBRE Group currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2021 and 2022 earnings per share moved 0.6% and 1.8% upward, respectively, over the past month to $5.33 and $5.54. Additionally, the company’s long-term earnings growth rate is projected at 11%. The stock has also appreciated 5.1% in the past six months.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Jones Lang LaSalle Incorporated: Headquartered in Chicago, IL, Jones Lang LaSalle offers commercial real estate and investment management services. The company’s diverse range of products and service offerings, along with its strategic investments, give it a strong footing. Also, its superior client services and strategic investment in technology and innovation are expected to boost market share and win relationships.
The Zacks Consensus Estimate for 2021 and 2022 earnings per share moved 1.7% and 1.6% north in the past month to $17.34 and $18.42. The company’s long-term earnings growth rate is estimated at 9%. Jones Lang LaSalle currently carries a Zacks Rank #2. The stock has gained 0.9% in the past six months.
Cushman & Wakefield plc.: It is a commercial real estate services firm and provides property leasing, facilities management, tenant representation and valuation services. The company operates through the Americas, Europe, Middle East, and Africa, and Asia Pacific segments. In 2020, the firm generated revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. The company is poised to benefit from the rebounding fundamentals of the real estate operations industry.
This Zacks Rank #1 (Strong Buy) company is witnessing upbeat estimate revisions, with the Zacks Consensus Estimate for 2021 and 2022 moving up 0.6% and 4.6% over the past month to $1.71 and $2.06, respectively. The company’s shares have rallied 16.2% in the past six months.
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