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Brokerages Anticipate Big Revenue Gains Outside U.S.

Get used to saying “EMEA” and “Asia Pacific” a whole lot. After all, Europe, the Middle East and Africa — a.k.a. EMEA — and the Far East are the new frontiers when it comes to growing revenue streams for the world’s largest brokerage firms.

Over the past few years, CB Richard Ellis, Jones Lang LaSalle and Cushman & Wakefield have aggressively diversified the international scope and scale of their business models.

Case in point: CBRE reported second-quarter revenue of $155.7 million stemming from its Asia-Pacific operations. That’s a 22.8% increase over the same period a year ago. Second-quarter revenue for EMEA totaled $299.7 million, down from $330.8 million in the second quarter of 2007, primarily due to a slowdown in transaction volume.

Still, the combined revenues of its EMEA and Asia-Pacific operations is larger than the combined revenue for all of CBRE’s service business just seven years earlier, according to Robert Sulentic, group president, EMEA, Asia Pacific and development services for the world’s largest brokerage.

“It’s been a bit of a rocket ship over there, and while the growth rate may moderate, globalization is very real and is absolutely key to our future success,” says Sulentic.

Meanwhile, Jones Lang LaSalle reported $236 million in revenue tied to the EMEA business segment during the second quarter, an increase of 20% over the same period last year. While Jones Lang LaSalle’s revenue from the Asia-Pacific segment dropped 32.9% to $142 million during the same period, that was primarily due to a one-time transaction advisory fee earned in the Asia Pacific Hotels business last year.

Both firms are encouraged by the results overseas of late, particularly in light of their drooping stock prices and the lower volume of transactions. Not to be outdone, earlier this month, Cushman & Wakefield opened two new offices in China, and in January it acquired its long-time Australian affiliate Lang + Simmons Commercial.

Acquisition of existing “boutique” firms is the primary growth vehicle for both CBRE and Jones Lang LaSalle as they enter new markets. In just the past two years, CBRE has purchased $147 million worth of firms overseas. In 2008 alone, CBRE has purchased or formed alliances with companies in the U.K., Scotland, Romania, Denmark, Australia and China.

“It’s a primary driver of our future growth, primarily because our clients are driving us there,” says Sulentic, the CBRE executive.

Indeed, earlier this year Hertz named CBRE its global outsource partner. What’s more, Software AG based in Frankfurt, Germany, tapped the world’s largest brokerage to be its services provider for locations in 50 countries. In January, Oracle hired CBRE to manage its 3.8 million sq. ft. EMEA portfolio of 120 office properties in 59 countries.

And in July, Citi selected CBRE, Cushman & Wakefield and Knight Frank as its preferred real estate services advisors for transaction management services across EMEA markets. The deal includes more than 1,600 offices, call centers and retail outlets in 53 countries.

While real estate is still very much a local business, Bill Krouch, CEO of North American Markets for Jones Lang LaSalle, says corporate users with far-flung offices want a single point of contact. “The corporate clients love the accountability of one firm and knowing they have consistency of delivery that they would normally get in the U.S. or other geographies across the globe. That resonates very much with corporations that really don’t want to have lots and lots of real estate providers.”

Major brokerage firms also are targeting the retail sector for international growth. CBRE strengthened its retail position in both the United Kingdom and other major European countries when it acquired Dalgleish & Co. Ltd., a London-based retail real estate services specialist for $37.9 million in 2005.

Jones Lang LaSalle has had its own retail foray into Europe thanks to its purchase of Kemper Group, Germany’s largest retail advisory firm, in May. Recently, Hard Rock International appointed Cushman & Wakefield to run its 127 European cafes.

But just how hot are international growth prospects, given the nature of the spreading global economic downturn? According to recent research from Prudential Real Estate Investors, Asia appears to be weathering the storm, at least for now. “Space market fundamentals in Asia’s office markets are remarkably healthy. Vacancies remain low, and new supply in most markets is modest,” researchers wrote.

But the Prudential report suggests that it may not remain a safe haven for long. “From the macroeconomic standpoint, Asia is bracing itself for a ‘perfect storm’ — the global credit crunch, spiking oil prices and soaring inflation — which is almost certain to decelerate the region’s economic growth, probably into next year.”

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