CBRE, JLL Shares Plunge On Real Estate Woes Post Brexit

Shares of real estate services firms – CBRE Group Inc. (NYSE:CBG) and Jones Lang LaSalle Inc. (NYSE:JLL) – plummeted last Friday as the majority of Britons voted in favor of leaving the European Union. The real estate market is anticipated to face a slump following the Brexit and these two companies have a bigger exposure to the region.

CBRE shares plunged 9% while JLL declined 12.08% in Friday’s session on the NYSE.

In fact, according to Bloomberg news that cited projections by the research firm Green Street Advisors LLC, London office building values might fall as much as 20% within three years of Britain exiting the European Union. Also, new leasing activity is expected to face a slump.

This can cast a pall on CBRE and JLL. CBRE generated 27.7% of its 2015 revenue from its Europe, Middle East and Africa (EMEA) segment. Notably, in the EMEA segment, the largest operations are located in France, Germany, Ireland, Italy, The Netherlands, Spain, Switzerland and the United Kingdom. On the other hand, JLL generated around 26% of its consolidated revenue in 2015 from the same region.

The U.K. real estate market is rife with concerns that the country exiting the European Union would result in a lot of business reallocations abroad, leading to higher vacancy and pressure on rental rates. Also, economic growth is expected to stumble and property values might decline noticeably amid fears of rental uncertainty.

However, in recent times, these two companies have deliberately focused on recurring services that assure steady revenues over a long period. They are transforming their business-mix and are also making strategic acquisitions in this pursuit. Such diversification of business might partially cushion the adverse effect from the Brexit.

Presently, both CBRE and JLL have a Zacks Rank #3 (Hold).

However, investors interested in the real estate industry can consider other stocks like FirstService Corporation (NASDAQ:FSV) and Brookfield Asset Management Inc. (NYSE:BAM) . While FirstService sports a Zacks Rank #1 (Strong Buy), Brookfield Asset Management carries a Zacks Rank #2 (Buy).