The Zacks Real Estate Operations industry faces disruptions, including geopolitical unrest and macroeconomic challenges, in the near-term. Moreover, customers remain focused on cost controls and for certain asset categories, are delaying their decision-making with respect to property purchase and leasing.
Despite these challenges, the industry constituents are poised to benefit from the increased adoption of outsourced real estate services and other emerging trends. Also, strategic investments in technology provide a competitive advantage. Companies like CBRE Group, Inc. CBRE, Newmark Group, Inc. NMRK and Redfin Corporation RDFN are set to benefit from these favorable trends.
About the Industry
The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facility management, project management, transaction and consulting services, among others. However, 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 determines the industry’s performance. Economic activity, employment growth, office-based employment, interest-rate levels, costs and availability of credit, tax and regulatory policies, and the geopolitical environment are the major factors shaping the real estate market’s fate. Also, pandemic-induced public health challenges and geopolitical issues have affected property sales and the leasing lines of businesses.
What's Shaping the Real Estate Operations Industry'' Future?
Geopolitical Unrest to Affect the Industry: The industry’s performance is likely to bear the brunt of geopolitical unrest and macroeconomic challenges. Conflicts, mainly in Ukraine and the Middle-East countries, have profoundly impacted energy and food security. This situation has escalated supply-chain disruption, resulting in higher inflation rates and other macroeconomic uncertainties worldwide. Change in government policies in the United States, increases the level of uncertainty and sets the stage for 2025 to be a year of significant disruption. Businesses with global supply chains and workforces are expected to confront new and more complicacies related to trade agreements, immigration policies and diplomatic relations. The Federal Reserve is expected to maintain elevated interest rates for a longer period than previously expected. Amid such an environment, clients are likely to adopt a cautious approach. As a result, investors’ desire for greater price discovery will cause a delay in the closing timeline for transactions.
Demand Across Certain Real Estate Categories’ Hurt:The pandemic has led to significant changes in the utilization of various categories of commercial real estate. Although companies are promoting the return to the office, the transition is gradual, which is impeding tenants’ confidence in long-term commitments. Consequently, pre-pandemic office occupancy levels will likely remain elusive in the near to intermediate term. Amid a volatile environment and geopolitical issues, customers remain focused on cost controls and delay their decision-making with respect to leasing. As such, industrial real estate demand remains subdued and this trend is expected to continue in the near term. Additionally, hotel real estate growth has been hindered due to continued imbalance in international outbound travel from the United States compared with international inbound travel.
Outsourcing of Real Estate Needs to Gather More Steam:Real estate occupiers, including corporations, public sector entities, healthcare providers, and those in finance, industrial sectors, life sciences and technology, are increasingly opting to outsource their real estate needs. They are placing their confidence in third-party real estate experts to achieve improved execution and efficiency. Organizations are progressively seeking strategic guidance to reimagine their workplaces and practices to enhance their culture, attract talent and improve performance. These developments are creating opportunities for participants in the real estate operations industry. Key players in the industry are taking advantage of this shift, leading to the acquisition of new clients and the expansion of existing ones. Within this industry, companies will continue to prioritize investments in technology as it consistently enhances efficiency, provides superior client services and contributes to market share expansion.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #216, which places it in the bottom 12% of more than 246 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak 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 two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the downward earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that of late, analysts are losing confidence in this group’s growth potential. Since the past year, the industry’s earnings per share estimates for 2024 and 2025 have moved 25.5% and 8.6% south, respectively.
However, 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 Outperforms S&P 500 but Underperforms the Sector
The Zacks Real Estate Operations industry has outperformed the S&P 500 composite while underperforming the broader Zacks Finance sector over the past year.
The industry has advanced 20.2% during this period compared with the S&P 500’s return of 18.7%. However, it underperformed the broader Finance sector’s growth of 25.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings, which is a commonly used multiple for valuing Real Estate Operations stocks, we see that the industry is currently trading at 17.76X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.95X. The industry is trading above the Finance sector’s forward 12-month P/E of 17.11X. 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 24.46X and as low as 10.74X, with a median of 16.64X.
3 Real Estate - Operation Stocks Trying to Survive the Industry Challenges
Newmark Group, Inc.: Headquartered in New York City, Newmark is a leading commercial real estate services company that is rapidly expanding its presence globally. It advises and provides services to large institutional investors, global corporations and other owners and occupiers of commercial real estate.
With investments in talent and technology, it is expected to experience decent performance going forward. It is poised to benefit from the opportunities from the large and highly fragmented market, institutional investor demand for commercial real estate and from the favorable trend toward outsourcing of commercial real estate services.
Newmark currently sports a Zacks Rank of #1 (Strong Buy). The Zacks Consensus Estimate for its 2025 earnings per share (EPS) has moved 3.6% upward over the past month to $1.45. This also indicates 17.9% growth year over year. NMRK shares have gained 5.5% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Redfin Corporation: Headquartered in Seattle, Redfin is engaged in providing residential real estate search and brokerage services. The company provides an online real estate marketplace and offers real estate services, such as assisting individuals to purchase or sell their residential property.
It uses technology and local service to originate, service and sell mortgage loans and offer title and settlement services. Its expertise in the online platform in an improving housing market will support its growth trajectory.
Redfin carries a Zacks Rank #2 (Buy) at present. The Zacks Consensus Estimate for its 2025 EPS is pegged at 84 cents, indicating an increase of 38.2% year-over-year. RDFN’s shares have lost 29.8% in the past three months, providing a good entry point to investors.
CBRE Group: 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 estate in all major metropolitan areas across the globe.
The company has opted for a better balanced and more resilient business model in the past years and continues to gain from its diversification efforts. The outsourcing business remains healthy and its pipeline is likely to stay elevated, offering it scope for growth.
CBRE Group currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 EPS has moved one cent upward over the past month to $6.03. Its shares have gained 3.6% over the past three months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
