It has been a particularly turbulent period for the brokerage industry. Over the past 18 months, a leasing drought has led to layoffs at several big-name brokerages. Earnings plunged so far at Grubb & Ellis that the company's stock was delisted by the New York Stock Exchange last fall. And, looking for greater reach and economies of scale, No. 2 broker CB Richard Ellis in February announced plans to buy No. 1 broker Insignia/ESG.

Based on 2002 NREI survey numbers, the combined company will have $78.3 billion in revenue, making it an unassailable No. 1 in 2003 — barring a larger merger. Cushman & Wakefield, the No. 3 broker in 2002 with $37.8 billion in 2002 revenue, will move up to a distant No. 2.

Growing Investment Sales

For 2002, the story of CB Richard Ellis was about how to make the most of a painful market: The Los Angeles-based services firm, watching vacancies rise and leasing volume plunge, turned its attention to sales.

How did it do? The company posted $23.6 billion in global investment sales in 2002, up 68% from $14 billion in 2001. To put that in perspective, total U.S. office investment sales jumped 33% to $100.5 billion in 2002. CB beat the domestic growth rate in large part because of skyrocketing sales in Australia, Canada, Europe, the Middle East and Africa, according to company officials. “You had tremendous supplies of capital targeted at foreign markets,” says Gregory Vorwaller, president of investment sales for CB Richard Ellis.

CB's dramatic jump is attributable to the lure of historically low interest rates and will be hard to repeat in 2003. Indeed, in the first quarter of this year, CB Richard Ellis reported a more moderate (yet healthy) 18% revenue increase to $263.7 million, from $224 million in the first quarter of 2002.

CB Richard Ellis President Brett White says he believes that the company will continue to grow its investment sales in the near term — though perhaps not at such a frenetic pace — as interest rates are expected to remain low through 2004.

“The U.S. market is responsible for about 70% of our revenues and EBITDA, and we believe there is tremendous opportunity to grow outside the U.S.,” says White. “Right now we have a dominant or preeminent position in most of the major world markets.”

Grabbing Market Share

The story of CB this year is dominated by the merger, which was expected to close in July. With Insignia/ESG's offices, staff and resources, CB Richard Ellis will be the market leader in New York City, Paris and London. CB Richard Ellis already had offices in 47 countries.

White is convinced that the industry is rapidly segregating into three types of companies. “At the big end we are ending up with two or three major global players” that are going to take between 50% and 70% of the market share, he predicts.

The others are small, single-market players who focus on tenant work or target specific industries, such as law firms. Then there are the mid-sized national and regional companies which, according to White, are going to be forced to make a choice: Downsize and become a niche player, find a buyer, or disappear.

But consolidation is never easy and often distracting. “It will be particularly challenging to hold on to employees in large markets where each company had a large office,” says Will Marks, a real estate analyst with San Francisco-based JMP Securities. “For every core market in the U.S., the individual brokerage office can only accommodate a certain amount of brokers. They would be stepping on each other's shoes.”

A handful of Insignia's top talent in major U.S. markets have left Insignia, including Senior Managing Director Lisa Campoli, who went to Meredith & Grew Inc. in Boston, and Insignia Managing Director Robert Baraf, who jumped to Cushman & Wakefield's New York office. But the majority of top brokers and managers have agreed to stay on with the new entity, says White, who is quick to add: “This deal has been public for four months, and we have had almost no attrition.”