The ramped-up vaccination drive and stimulus packages are raising hopes for the Zacks
Real Estate Operations industry constituents. Further, acceleration of certain trends by the pandemic and rising tendency of outsourcing of real estate needs by companies are opening up scopes, while technological investments are creating a competitive edge. As such, CBRE Group, Inc. ( CBRE Quick Quote CBRE - Free Report) , Jones Lang LaSalle Incorporated ( JLL Quick Quote JLL - Free Report) and Realogy Holdings Corp. ( RLGY Quick Quote RLGY - Free Report) are likely to benefit from these favorable trends. Nevertheless, resurgence of coronavirus cases with the spread of the Delta variant has thrown up public health challenges once again. Limited business travel and face-to-face business dealings, as well as with a large chunk of workers remaining out of their offices, the operating challenges are expected to prevail 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 key factors shaping up the real estate market’s fate. Notably, 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 anticipations of healthy growth in the upcoming period. Particularly, during the second quarter this year, global capital markets transaction volumes rebounded. With increased competition and ample capital directing toward commercial real estate, pricing is getting a boost. In addition, with a number of commercial real estate segments showing operational resilience, liquidity and capital flows have been steady. COVID-19 pandemic accelerating trends and creating opportunities: Despite the adverse impact on the higher-margin property leasing and sales businesses, the coronavirus crisis 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 hogging the limelight, proving this asset type’s resiliency amid the pandemic. A number of workplace trends that were present before the pandemic, such as experiential workspaces, outsourced real estate functions, together with greater-than-before focus on employee well-being, have also gained much prominence, thereby creating scopes for these industry participants to bank upon. As such, players with broad diversifications across property types, geography, business lines and clients have opportunities to escape the heat and rather excel. Outsourcing of real estate needs to gather more steam: Occupiers of real estate, such as corporations, public sector entities, health-care providers 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 trend is likely to continue in the upcoming period, opening up prospects for constituents of the real estate operations industry. In particular, the large players are capitalizing on this trend, with both existing as well as new client wins and expansions, which includes advising on re-entry strategies and code of behavior. Nonetheless, the economic uncertainty and cautious attitude of clients/corporate occupiers might cause delays on real estate decisions in the days to come. Technology Investments Offer Competitive Edge: The pandemic has aggravated technological disruptions in the commercial real estate industry, and the big players in this industry are focusing on process improvements and leveraging their technology platform. These moves offer significant room for growth even amid any social-distancing measures, drive efficiency, deliver differentiated client services, help in market-share gains, and aid in differentiating from peers. As such, investments in technology will likely keep being the key focus for this industry’s constituent companies.
COVID-19 Crisis, New Strains Challenge Industry’s Recovery: The resurgence of coronavirus cases, however, with the spread of the Delta variant has thrown up public health challenges. Limited business travel and face-to-face business dealings, as well as with a large chunk of workers being out of their offices, the operating challenges are expected to continue in the upcoming period. Amid this uncertain environment, several property owners and occupiers are keeping transactions on hold and withdrawing existing mandates. Thus, real estate acquisitions, dispositions, financing, construction and leasing activities might remain subdued in the days to come until the health crisis dissipates. Apart from these, any decline in the value of commercial real estate and in rents, due to the global health crisis and economic weakness, will dent the constituent company’s revenues from property commissions, while potential delays in payments from clients might lead to other concerns. 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 #108, which places it at the top 43% 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. So far in the year, the industry’s earnings per share estimate for 2021 moved 38.2% north. 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 Leads on Stock Market Performance
The Zacks Real Estate Operations industry has outperformed the broader Zacks Finance sector as well as the S&P 500 composite over the past year.
The industry has appreciated 38.7%, during this period, as against the S&P 500’s rally of 29.6%. Meanwhile, the broader Finance sector has gained 37.7%. 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 23.05X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.71X. Also, the industry is trading above the Finance sector’s forward 12-month P/E of 14.84X. 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 34.46X, as low as 11.77X, with a median of 16.14X.
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 flaunts a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2021 earnings per share moved 17.8% upward over the past month to $4.83. Additionally, the company’s long-term earnings growth rate is projected at 11%. The stock has also appreciated 6.7% in the past three months. 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 the ongoing-year earnings per share moved 27.4% north in the past month to $15.37. Jones Lang LaSalle currently sports a Zacks Rank #1. The stock has also gained 17.5% in the past three months. Realogy Holdings Corp.: This Madison, NJ-headquartered company is one of America's reputed real estate services companies. It offers brokerage services, relocation and title and settlement businesses as well as a mortgage joint venture. The company is poised to benefit from the rebounding fundamentals of the real estate operations industry. This Zacks Rank #1 company is witnessing upbeat estimate revisions, with the Zacks Consensus Estimate for the current year moving up 16.4% over the past week to $3.05. It also calls for a 51.7% increase, year on year. The company’s shares have rallied 14.5% in the past six months.