Global property service firm’s profits plummet in credit crunch

The world's two largest property services firms suffered severe profit falls in the second quarter of this year as a direct result of the credit crunch.

They are also warning that things are unlikely to get better in the short term and could even get worse.

CB Richard Ellis revealed an 88% plunge in net profit from $141.1m (£70.5) in the second quarter of last year to $16.6m (£8.3m), while Jones Lang LaSalle reported a 69% drop in profits from $77.9m (£39m) to $24.5m (£12.2m).

The credit crunch has severely restricted lending and has brought much of the world's largest global commercial real estate markets into a deep freeze, choking the revenue that services companies had reaped from brokerage fees.

Leasing activity, another commission and fee generator for commercial real estate services companies, in the US and much of Europe has slowed as economies worsen.

'I can best describe the current environment as being very challenging, and still having a high probability of getting worse before we see improvement,' CB Richard Ellis Chief Executive Office Brett White.

'As we had anticipated, the leasing business turned down from the strong first quarter, especially in the Americas and the UK, reflecting weak economic activity and decreasing business confidence,' he added.

'Investment sales activity remained quite soft due to a broadening of the credit market turmoil and a continuing gap between buyer and seller expectations of property values. Decreased investment volumes have now become evident in all parts of the world.'

Commercial real estate prices have declined 15 to 25% said Jones Lang LaSalle CEO Colin Dyer. And a stalemate has resulted as sellers are unwilling to accept lower prices.

He predicted that the logjam will only break when distressed property owners are forced to sell. Prospective buyers, sitting on a lot of cash, are likely to see attractive opportunities.

Both firms said their bright spots were corporate real estate advice. CBRE's outsourcing business saw revenue rise by 29% and accounted for a third of global revenue. JLL's management services revenue rose 28% to $215m (£107m).