Jones Lang, CBRE fall as EU exit bodes UK real estate pause

Bloomberg

CBRE Group Inc. and Jones Lang LaSalle Inc., real estate services firms that do a significant share of their business in the U.K., tumbled as investors speculated on a possible fall-off in property sales and leases after Britons voted to leave the European Union.
CBRE, the world’s largest commercial-property brokerage, dropped 9 percent to $27.31 in New York, its worst day since August 2011. Jones Lang, the No. 2 brokerage, fell 12 percent to $103.30, its biggest decline since December 2008.
“Maybe transactions take longer and some get canceled,” Brandon Dobell, an analyst who covers both companies for William Blair & Co. LLC, said in an interview. “The same can happen for the leasing business, maybe space gets cheaper and corporations just don’t lease as much space. All this can have an impact on the revenue streams” for CBRE and Jones Lang.
London office building values may fall as much as 20 percent within three years of Britain leaving the European Union, and new leasing will slow dramatically, research firm Green Street Advisors LLC projected. Chicago-based Jones Lang got almost 24 percent of its revenue last year from Europe, the Middle East and Africa, according to information compiled by Bloomberg. CBRE, based in Los Angeles, got close to 18 percent from the U.K. and more than 27 percent from countries other than the U.K. and U.S.
Robert McGrath, a CBRE spokesman, declined to comment. Gayle Kantro, a spokeswoman for Jones Lang, said the company had no immediate comment.

‘Largest Hits’
Both companies’ stocks declined early this year as part of a global retreat by investors concerned that the recovery from the recession was nearing its end and economic growth in China was slowing.
In a note to clients on Thursday after the Brexit vote, Dobell said CBRE and Jones Lang would “take the largest hits” among real estate service companies because of their bigger exposures to Europe and the U.K. compared with competitors. “U.S.-centric brokers” such as Holliday Fenoglio Fowler LP, Marcus & Millichap Inc. and Walker & Dunlop Inc. “aren’t likely to see much more than some deal delays” in the second and third quarters.
Selloffs of CBRE and Jones Lang shares may offer a buying opportunity, Dobell said.
“These businesses are becoming less and less about transaction activity, and more and more about recurring services, such as facilities management, property management — things that are not dependent on capital markets,” he said in the interview. “The business mix today makes these companies less susceptible to something like Brexit than they were two years ago or
especially five or eight years ago.”