- The pandemic almost killed offices, but with companies and the federal government demanding workers get back, the outlook is rosier for real estate. CBRE credited the “improved return to office momentum and a healthy economic outlook” for optimism on the horizon.
Once upon a time, conversations about offices sounded catastrophic. The pandemic birthed remote work, so offices were empty, and their market values fell. Office vacancies kept hitting all-time highs, the rate surpassing 20% for the first time ever. Predictions that values could fall more than 40% peak-to-trough made the rounds.
But then a flood of CEOs issued return-to-office mandates . And companies expanded their office footprint, calling their workers back. Even the federal government wants its workers back in the office.
CBRE, the largest commercial real estate services company in the world, reported earnings on Thursday for the fourth quarter and full year of 2024. It beat expectations and signaled the office apocalypse might finally be over. “U.S. office leasing delivered 28% revenue growth,” CBRE chief financial officer Emma Giamartino said on the earnings call.
“Office occupiers are increasingly comfortable making long-term decisions, given improved return-to-office momentum and a healthy economic outlook. The durability of office leasing growth was a prominent question as recently as October, when we last reported earnings. While New York led most of the office leasing recovery in 2024, other markets accelerated substantially in the fourth quarter,” she said.
Revenue from office leases arranged by CBRE in New York, San Francisco, Los Angeles, Chicago, Washington, D.C. and Boston increased a total of 30%, Giamartino shared. Office leasing revenue in Dallas, Atlanta, and Seattle grew even faster. “This gives us confidence that office leasing will continue to increase as activity has spread broadly,” Giamartino said.
In early January, JPMorgan Chase declared a five-day-a-week return to work mandate. Moody’s head of commercial real estate economics Thomas LaSalvia, told Fortune at the time: “Whether 5 days a week is mandated, or a more flexible approach is offered, many firms claim culture, professional development, and innovation requires employees to consistently interact in person; this cements our view that office real estate performance has nearly bottomed out, and a clear path to a new equilibrium is emerging.”
LaSalvia continued: “We see vacancy rates continuing to rise this year, but that will only be in a subset of ‘obsolete’ buildings in less desirable neighborhoods. We will see growth in newer mixed-use neighborhoods with modern development and vibrant streets. Office is now firmly in a right-sizing part of its evolution.”
CBRE’s net revenues rose 18% for the fourth quarter and 14% for the year. CBRE reported $1.5 billion free cash flow for all of 2024, too. Plus, on a quarterly basis, it reported core earnings per share of $2.32.
“The fourth quarter was CBRE’s best quarter ever for core earnings and free cash flow with broad strength across our business,” CBRE chair and chief executive officer Bob Sulentic said. He went on to say that his confidence in the company’s future has never been stronger, and that he thinks the market is actually undervaluing the business. CBRE shares rose close to 2% on the news.
