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Bear of the Day: Cushman Wakefield (CWK)

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Today’s Bull of the Day is a major player in the restaurants. That’s an industry that has been hit hard by the outbreak of Covid-19, leaving many weaker players out of business or struggling for survival. Overall however, consumer demand continues to look strong. In fact, state and local regulations lately have been targeted at getting diners and bar patrons to stay home for the time being. They’re chomping at the bit to go out.

It’s not hard to imagine that the restaurant industry will be back stronger than ever when the crisis is over and/or we have a reliable and accessible vaccine.

Other industries may not be so lucky. Some changes in behavior during the pandemic seem like they might last well past the end of the crisis. Commercial Real Estate may well never look the same as companies and employees realize that much work can be done efficiently from home (or other remote locations) and that the traditional office is no longer necessary. Retail real estate could also suffer the effects of oversupply as consumers realize that those online purchases they’ve been making out of necessity are actually an easier way to buy many of the things they need.

Chicago-based Cushman Wakefield (CWK - Free Report) is a full service commercial real estate firm that represents both landlords and tenants in commercial lease transactions and also owns and develops its own commercial properties.

Until this year, that unglamorous business was a consistent moneymaker. In an expanding economy, there was a nearly constant need for more space and Cushman Wakefield deftly covered multiple corners of the business, collecting lucrative transactional revenues and using its industry knowledge to purchase, improve and lease profitable parcels.

In March of 2020, millions of Americans stopped going to a central location and began working from their homes. While many miss the in-person interactions that they previously relied on for new ideas and solutions to problems, many more are realizing that they’re getting just as much done – or more – working their own hours and avoiding time-sucking commutes.

Even more importantly, employers are re-thinking the expense of leasing office space going forward when many of their employees can function effectively from remote locations. Prime office space in big city centers will take the biggest hit. The long-term nature of most leases will keep tenants paying the bills for the time being, but the renewal cycle is almost certain to slow down, taking lucrative commissions for brokers like Cushman Wakefield with it.

The shift to smaller spaces in more remote locations as businesses adapt to the needs for social distancing in the workplace will also reduce the total amount of rent collected by commercial landlords.

Unfortunately, that could leave CWK exposed on both fronts. 2020 revenues are expected to be off by 12% while net earnings are predicted to decline by more than 50%. Cushman Wakefield is currently a Zacks Rank #5 (Strong Sell).

During major behavioral shifts like we’re experiencing in 2020, some businesses and industries are simply going to be on the wrong side of the trends. Commercial real estate and Cushman Wakefield are in that unfortunate position right now.

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