CBRE Group A Stock

Greetings. Welcome to the Q2 2026 CBRE Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Chandni Luthra, Global Head of FP&A and IR of CBRE. Thank you, Chandni. You may begin.

Good morning, everyone, and welcome to CBRE's Second Quarter 2026 Earnings Conference Call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks and an Excel file that contains additional supplemental materials. Today's presentation contains forward-looking statements, including, without limitation, statements concerning our business outlook, business plans, capital allocation strategy as well as our earnings and free cash flow outlook. These statements involve risks and uncertainties that may cause actual results and trends to differ materially. For a full discussion of the risks and other factors that may impact these statements, please refer to this morning's earnings release and our other SEC filings.

We provided reconciliations of our non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures, together with explanations of these measures in our presentation deck appendix. Throughout our remarks, when we cite financial performance relative to expectations, we are referring to actual results against the outlook we provided on our first quarter 2026 earnings call in April, unless otherwise noted. All the growth rates we cite are in U.S. dollars, unless otherwise noted, and reflect an FX tailwind of 1% to 2%. Also, as a reminder, our resilient businesses include facilities management, critical infrastructure services, property management, project management, loan servicing, valuations, other portfolio services and recurring investment management fees.

Our transactional businesses are comprised of property sales, leasing, mortgage origination, carried interest and incentive fees in the investment management business and development fees. I'm joined on today's call by Bob Sulentic, our Chair and CEO; and Emma Giamartino, our Chief Financial Officer.

Now please turn to Slide 3 as I turn the call over to Bob.

Thank you, Chandni, and good morning, everyone. The momentum in CBRE's business continued in the second quarter with core EPS up 30% on a 16% revenue increase. Our strength was balanced across the company. Each of our segments, Advisory, Building Operations & Experience, Project Management and REI grew SOP by more than 25%. Our strategy is working the way we intended. Resources and investments are being productively directed into areas that drive current growth and position us for long-term growth. Directly related to this positioning, over the last several months, we've received many questions from investors about our infrastructure and data center services businesses. Those businesses are performing well, and they provide an excellent forward-looking opportunity. Infrastructure services revenue reached nearly $1.2 billion in the second quarter, increasing by more than 45%.

Within Infrastructure Services, data center services revenue surpassed $700 million, rising nearly 30%. This revenue is strictly from the provision of services and does not include any data center development land sales. The work we do includes the build-out of data centers as well as ongoing maintenance and operational oversight. During this period of significant AI investment, we expect our data center services revenue to remain elevated at about 25% annually for the next 5 years and then above 15% as the build cycle matures. Given the momentum in our entire business and specifically our infrastructure business, we have increased our core EPS expectations for 2026. We now expect to earn in the range of $7.80 to $7.90, equating to 23% growth at the midpoint.

Now Emma will discuss our outlook and results for the quarter in more detail.

Emma?

Thank you, Bob, and good morning, everyone. CBRE's strong second quarter saw revenue increase by 16% as both resilient and transactional businesses delivered double-digit growth. Results exceeded our expectations with core EBITDA up 34% and core EPS up 30%. This is the fifth consecutive quarter that we achieved at least 18% core EPS growth. In Advisory Services, revenue rose 18% and exceeded our expectations, driven by accelerated growth in leasing and continued strength in sales. Global leasing revenue grew 24% with strength across office and industrial. In the U.S., leasing also grew 24%, led by office, up 29% and industrial up 17%.

We generated our highest U.S. office leasing revenue for any second quarter, driven by large deals in gateway markets. We've seen notable strength across the legal and financial services sectors as tenants are upgrading and expanding their space. U.S. industrial leasing growth was led by Los Angeles, San Francisco, Washington, D.C. and Chicago, reflecting increased demand from 3PL providers and companies engaged in advanced manufacturing. Outside the U.S., leasing grew 27% in EMEA, led by France, Germany and Spain and 19% in APAC with notable strength in Australia and India. Global property sales revenue grew 20%, led by the U.S., which grew 24% with double-digit increases across most major property types.

Outside the U.S., sales grew 8% in EMEA and 6% in APAC. Mortgage origination revenue grew 8% with strong volumes from private capital sources, partly offset by lower agency lending activity. Advisory SOP grew 29%, reflecting strong operating leverage. We delivered strong double-digit revenue growth in our Building Operations and Experience segment. Growth was led by Critical Infrastructure Services, where revenue increased 68%. Our Data Center Solutions business grew nearly 30%, benefiting from both significant hyperscaler demand and the depth and breadth of our capabilities. Contributions from the Pearce Services business we acquired last November enhanced the growth rate.

Our local facilities management business once again delivered strong high teens revenue growth across all regions, particularly in the Americas, up almost 35%. Enterprise facilities management revenue growth was led by the technology, media and telecom sectors. BOE SOP grew 25%. In our Project Management segment, revenue grew 19%, underpinned by solid infrastructure activity, which increased 30%, while real estate-related services grew 13%. Infrastructure saw strength across transportation and utility projects in the U.K., Europe and the Middle East. Real estate saw greater than 20% growth in North America and strong double-digit growth in Asia. Across all regions, hyperscaler and technology clients drove significant activity. SOP grew 28% with notable operating leverage, which we expect to moderate in the back half of the year given the timing of costs.

Turning to the Real Estate Investments segment. Development operating profit exceeded the prior year, in line with our expectations and without the benefit of any data center land sales. We continue to have embedded gains of approximately $900 million in our development portfolio. In Investment Management, operating profit was up modestly, and we ended the quarter with approximately $155 billion of AUM.

We raised $1.6 billion of new capital in the quarter, up from $1.3 billion in the fourth quarter, but below our expectations. Some investors, particularly capital from the Middle East, remained cautious given the volatile global backdrop. Now I'll turn to free cash flow and capital allocation. Free cash flow totaled nearly $1.7 billion on a trailing 12-month basis. For the full year, we remain on track to achieve near the high end of our free cash flow conversion range of 75% to 85%.

Since the end of the first quarter, we have bought back more than $450 million worth of shares, bringing our year-to-date total to nearly $1 billion. This level of buyback activity underscores our conviction that our stock price meaningfully undervalues the enduring long-term growth we see ahead for the business. As Bob indicated, we now expect full year core EPS of $7.80 to $7.90, up from $7.60 to $7.80 previously.

The increase is driven by our outperformance in the second quarter and improved expectations for the balance of the year. We now foresee more than 20% core EPS growth in the third quarter with the fourth quarter likely to be comparable to last year when we also realized significant profits from our data center land program. Assuming no material changes to the macroeconomic or interest rate environment, we remain confident in delivering at least a 15% increase in core EPS in 2027.

With that, operator, we will open the line for questions.

[Operator Instructions] Our first question is from Anthony Paolone from JPMorgan.

My first question relates to just capital priorities and the second half of the year and what's in guidance, just given the heavy cash flow production later in the year, kind of what do you have baked in for buybacks or other activities?

So our capital allocation priorities remain unchanged from where we've been for the past number of years. We continue to prioritize M&A. And as we've talked about, we have a really strong pipeline across the areas where we know we want to invest, but it is difficult to predict which M&A targets we'll be able to convert. And then we'll fill in with buybacks if we don't deploy that level of free cash flow that we generate through M&A.

In terms of the back half of the year, there is not significant incremental capital allocation included in our guidance.

Okay. Got it. And then just on BOE, can you maybe update us on your thinking as it relates to margins in that business for the year? Because I think you started the year out pointing to it being more flattish, but it seems like it's improved quite a bit here in the second quarter.

Yes. So we did make a change to how we classify amortization related to our fleet in that segment. And so without that change, the margin for the year will improve by 20 basis points or so. But the rest of that margin improvement is related to that reclass.

Our next question is from Stephen Sheldon at William Blair.

On the leasing side, another very strong quarter there, and that's now been true for the last 2-plus years. So do you think activity -- leasing activity there has effectively normalized now after the pandemic where leasing growth looking forward would be more in line with an average seen throughout the macro cycle? Or is there still room for above-cycle growth just as pent-up demand on the leasing side continues to come through? I guess just how are you thinking about it over the next couple of years?

Stephen, I think there has been a return to the norm. I think COVID is so far in the rearview mirror now that people -- you see it in office buildings, you see it in restaurants, you see it in everything. There is a real return to the norm.

Secondly, people really are focused on what office space can do for their businesses, for the productivity of their businesses, exciting their employees about being part of the company, getting their young people educated and brought into the business. That's a very real thing. It's a real thing for us.

We have a lot of office space around the world, and we think about that a lot. And we know our big occupier clients are thinking about that a lot. And they're competing with each other to try to have the kind of space that allows them to get those things done. So I think it's going to be somewhere between a return to the norm and maybe more than that.

I'll give you one anecdote. With all the talk about the various parts of our economy that might get disintermediated by AI, one of the areas is the legal profession, law firms. We're having tremendous leasing success with law firms now, kind of unlike we ever had before. And it is because they recognize the importance of office space to their business. And it also is because they're using AI for certain things and then doing other things with their talent that's causing their headcount not to go down the way some people think it might.

Got it. That's helpful. It makes sense. And then just as a follow-up, Bob, a really encouraging commentary on the data center revenue growth outlook. As you think about CBRE's opportunity to continue to support the data center build-out, where do you see the biggest opportunities by business line, I guess, to drive the 25% annual revenue growth that you talked about expecting over the next 5 years? I mean is there -- are there certain business lines where there's a huge opportunity, you're not doing much yet. There's a big opportunity for activity to pick up. And just yes, maybe where you're seeing those opportunities?

Well, first of all, it's become big for us. So infrastructure was $1.2 billion of revenue in the quarter, $700 million of that was data centers. We think by the year 2030, we could have a $10 billion business with over $1 billion of EBITDA related to infrastructure. The disproportionate share of that would be in data centers, certainly not exclusively in data centers. Where we're really seeing it, the opportunity in the current activity is in two places. It's in our project management and program management business with Turner & Townsend.

By the way, they've been growing their data center-related business at over 30% for a decade now. And then the second place we're seeing it is building operations and experience. We're helping create data centers in support of the boom that AI is generating. But over half of our data center revenue is from downstream work, managing them, refitting them, doing project work in data centers. So we expect to see a lot of growth in both those areas of our business in the BOE area and in the projects business.

Our next question is from Julien Blouin at Goldman Sachs.

Congratulations on the strong quarter. I wanted to maybe dig into project management a little bit more, a very impressive quarter, both top line and bottom line. It sounds like maybe that will flow with expenses a little bit in the back half. But I guess, could you talk about how we should think about the sort of the projects that go into that? It sounds like it's a lot of infrastructure projects. I think of those as sort of longer-dated Turner & Townsend projects. And so is it right to think that much of this strength could carry into sort of the future quarters?

Julien, we're very, very excited about the future for Turner & Townsend and the project management and program management business that they participate in. First of all, one thing to realize about them is they were really dominant in Europe, Middle East, significant in Asia, significant in Australia. By combining with us, they've been able to significantly escalate their activity in Japan and India and especially in the U.S. So just the geographic positioning of that business has improved dramatically. And I've commented on this over and over.

We've been able -- the leadership team of Turner & Townsend is and the tools and capabilities they bring to the table just hasn't existed in our sector before. But where do we think the real opportunity will be with them? It will be in big infrastructure projects, big energy projects. It will be in doing more of that, in particular, here in the U.S. And Emma tells the M&A story every quarter. We have specific areas of our business. We want to grow with M&A. We've got some ideas around Turner & Townsend that we want to make happen there if we can find the right deals.

So we think that you should expect lots of growth in the U.S. and in infrastructure and in energy, et cetera, from Turner & Townsend, but they also do a tremendous amount of corporate work. And with Turner & Townsend as part of our business now, we're doing big complicated projects for corporates that we weren't able to do before. So that will be another area of growth.

No, that's very helpful. And then on the land site sales, it sounds like you have a number of these earmarked to be sold in the third quarter. Just wondering beyond the ones that are sort of earmarked here, how many will you have left in your land bank for potential future monetization?

We still have about 30 sites across the U.S. in our land bank. They're of varying sizes, and it's very difficult to time when they'll potentially monetize, but we still have 30 sites.

Our next question is from Jade Rahmani at KBW.

In terms of the 2027 commentary for EPS growth of at least 15%, is it reasonable to expect double-digit revenue growth? And are there any key areas of operating leverage you'd like to highlight?

So if you go through our segments, just simply, it's -- we're looking at low double-digit SOP growth across both BOE and project management, and that does include some operating leverage, but revenue growth is going to be in line with that low double-digit growth. And then advisory, as you'd expect, will moderate somewhat from this year, but it's not going to be anywhere near mid-cycle growth levels.

And then what we're expecting for REI is that it will be roughly flat to what we're expecting for this year's SOP, which we're expecting to be very strong. So some operating leverage across our segments, but not a tremendous amount.

Turning to the AI theme. I was wondering if you could comment on whether you see any risk of unbundling of services within property and facilities management? And also, could you parse out your views on the smaller size deals in the market and if you see that as an area of potential risk?

When you say, Jade, unbundling, give us a little more on what you're commenting on there.

Well, the thesis around outsourcing has been institutionalization of CBRE being a one-stop shop. And so within that, there's basic facilities and property management, but there's many other services that are provided to occupiers, a full suite of services. And so does AI give them potentially the capacity to shrink the scope of certain outsourcing projects?

So the outsourcing work that we do for occupiers centers around 3 big things: facilities management, project management and transactions or leasing. All of those areas of our business, and I'm going to start with transactions. The 3 big products that we're introducing or the 3 big areas that we're introducing AI into our product mix are with transactions, leasing in particular, and now we're using agentic AI to collect and assimilate data in a way that we can help, for instance, our occupier clients predict and benchmark the -- predict where their portfolio should go and benchmark them against others in the market.

We have a whole protocol that we're putting in place in our project management business to span the life cycle of projects related to budget, schedule and risk that's going to give our clients much greater insight into how projects go. It's going to give them much greater confidence in when to kick off big projects and how to correct course on big projects when they get off course on any of those 3 areas. And then in facilities management, we're using it for some very basic things, the kind of the back office work to make it more efficient. But we're also using it for predictive maintenance on the buildings that we manage. We're also using it to help move our mobile engineers around and schedule those engineers, et cetera.

So we think it's going to help all of the products that we offer to our occupier clients in the traditional outsourcing sense. It's actually the areas where we're going to use it most. And we don't think that any of those things that we do are positioned to be, I guess, when you say disintermediated or separate, pulled away from us because our clients would do it instead of having us do it. There's a significant labor involved in all of that work, and we think we have -- will have tools and an overall platform that the clients themselves won't have.

Our next question is from Steve Sakwa at Evercore ISI.

Bob, I know that the interest rate environment hasn't been as cooperative as everybody had hoped for at the beginning of the year, but you still put up pretty good growth in the transaction business. I'm just curious what kind of you're seeing, what the pipeline looks like? And is there any sort of concern about just funding in debt markets and how that business kind of moves forward?

There is concern that interest rates will go up and what's going on in the Middle East causes that. But a few things as it relates to our business and the market in general, Steve. Number one, and we've said this over the last couple of years quite a bit, that's a big important business for us, but the double-digit growth trajectory of our business doesn't depend on strong capital markets and large lease -- or excuse me, large sales volumes and large origination volumes. It's really important, and things will go even better if that happens. But the growth trajectory of our business and the strategy that underpins our business is not tied to that.

Secondly, what we saw in the quarter was lots of uncertainty around debt and the cost of debt and some things happen. So a big part of our profit stream in the origination business comes from the agencies. We did not have a strong quarter at all with the agencies, but yet we had still a very strong quarter overall in capital markets and in debt origination. What we saw in the market was the bid-ask spread had come down and was closer than it had been in years. And there are people out there. Again, we've talked about this quarter after quarter. There's people out there with assets that they want to sell, and there's people out there with lots of money to invest in assets. So the choppiness in the debt markets didn't keep them on the sidelines.

We don't know how that will unfold going forward, but we think we'll continue to see pretty strong sales for the rest of the year, and we think we'll see pretty strong debt origination for the rest of the year, but it may come down if interest rates go up or if the volatility gets to be too great.

Okay. And maybe, Emma, just as a follow-up to Tony's earlier question on kind of capital deployment. If I'm looking at the cash flow statement right, between buybacks and acquisitions, I think you've invested close to $1.3 billion in the first half of the year. And given that you sort of generate that $1.7 billion of free cash flow, is it fair to then assume that kind of buyback activity would likely taper off quite significantly? Or if the stock remains at sort of these levels, you would lean in and even, I guess, invest more than the free cash flow of $1.7 billion.

Our goal is not to deploy more than we generate free cash flow in buybacks. So yes, it's safe to assume that the buybacks will taper off.

Our next question is from Ron Kamdem with Morgan Stanley.

Great. Just thinking back to the presentation that you guys had in June, I think you talked about 30% of revenues from Fortune 100 companies. I guess I just -- when you sort of take a step back and you guys think about sort of your penetration rate and your opportunity set, not just across these Fortune 100 companies, but just broadly, just where do you think you are in that cycle in that inning? How much more sort of white space is there for CBRE?

Yes. We do a lot for the world's biggest companies. And it's just very clear in our results and what we're seeing day-to-day that there's a skewing of that opportunity toward anything related to data centers and infrastructure. There's all kinds of work going on with various military-related companies and so on and so forth. So -- and those are very large companies. Obviously, the hyperscalers are the biggest companies in the world.

And all of that -- all of those types of companies are offering up bigger and bigger opportunity than we've ever seen from them before. And all of those companies like to interface with companies that have substantial scale. Our scale helps us with those companies. Our ability to invest helps us with those companies, our global footprint.

I don't think I ever remember us being involved in any area of our business where the revenue synergies were as great as they are in the data center business. If you do data center work for a company in one area, the odds of getting work from them in other areas, other types of services or other geographies are as high as I've ever seen in terms of revenue synergies. So our future is going to be skewed toward big companies, and that opportunity for us is substantial.

Great. And just my follow-up. I mean, I think some of the numbers suggest we're in the sweet spot of the real estate cycle. And you sort of talked about 2027 growth, core EPS growth. And my question is really just on visibility, right? Like what are you guys looking at, whether it's contracts or pipelines? Like sort of what gives you sort of confidence in that visibility, call it, 12 to 18 months out to have that target out there?

So across our BOE and project management business, we have strong visibility. That low double-digit growth on SOPs that I talked about across both of those segments is in line with, if not slightly below, what those businesses have delivered consistently over the past number of years on an organic basis. And so we have high confidence that, that will continue. And then within advisory, we do believe that there is more room. Bob was talking about it earlier. But on the leasing side, we're still not back to 2019 levels.

We see there's more room to go this year, and that will extend into next year. And on the sales side, we're still pretty early. We've seen strong growth, but not near the levels of growth that we've seen coming out of other recoveries. So we have a high level of confidence that we'll be able to deliver 15% growth next year.

Our next question is from Brendan Lynch with Barclays.

Do you anticipate any impacts on your data center business from the growing NIMBYism that we're seeing in the market? And is there anything that CBRE can do either in conjunction or on behalf of your clients to mitigate concerns among local governments and local residents?

There's all kinds of things that are challenging the growth of the data center business relative to the demand for that growth. So there's the NIMBYism. There's water issues, which are tied to the NIMBYism. There's power issues, which are tied to the NIMBYism. There's challenges all over with regard to the supply chain for the kind of work we do, there's challenges. It's hard to hire the people you need to hire to do the work we do, obviously, all the equipment that goes into data centers, et cetera.

So there's challenges everywhere with regard to growing the base of data centers in the world. There's enormous demand. And there will be -- even in light of those challenges, there'll be considerable growth in the number of data centers and the size of the data centers out there. We're convinced of that. They'll have to move to areas that allow them to get that done. The supply chains will have to adjust, et cetera.

So yes, there's all kinds of pressures. When anything becomes that big and rapidly changing and uses up resources the way data centers use up resources, there's going to be challenges. But we expect a very, very substantial sustained opportunity in the creation of data centers and an even bigger long-term opportunity in the downstream work we do in data centers.

Great. And for my follow-up, on the local facilities management growth, I think it was in the high teens. It seems to outpace enterprise growth. Can you just discuss what was behind those dynamics this quarter?

So local, that business has consistently outpaced enterprise, and we expect that to continue. A major driver is the expansion of our local business into new markets. So for example, we really just started entering the U.S. 5 years ago or so or maybe a little bit before that. And within the U.S., we've been growing that business at 20% to 30% very consistently, and we expect that to continue. And even in the more mature markets where our local business is within the U.K., that's growing at a low teens rate. So there is a lot of growth within that business.

There are no further questions at this time. I would like to turn the floor back over to Bob Sulentic for closing comments.

Thanks, everyone, for being with us, and we'll talk to you again when we report our third quarter results.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the First Quarter 2026 CBRE Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chandni Luthra. Thank you. You may begin.

Good morning, everyone, and welcome to CBRE's First Quarter 2026 Earnings Conference Call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks and an excel file that contains additional supplemental materials.

Today's presentation contains forward-looking statements, including, without limitation, statements concerning our business outlook, business plans, seasonality and capital allocation strategy as well as our earnings and cash flow outlook. These statements involve risks and uncertainties that may cause actual results and trends to differ materially. For a full discussion of the risks and other factors that may impact these statements, please refer to this morning's earnings release and our SEC filing. We provided reconciliations of the non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures, together with explanations of these measures in our presentation deck appendix.

Throughout our remarks, when we cite financial performance relative to our expectations, we are referring to actual results against the outlook we provided on our fourth quarter 2025 earnings call in February, unless otherwise noted. Also, as a reminder, our Resilient Businesses include facilities management, critical infrastructure services, property management, project management, loan servicing valuations, other portfolio services and recurring investment management fees. Our transactional businesses comprised property sales, leasing, mortgage origination, carried interest and incentive fee in the investment management business and development fees.

Finally, beginning this quarter, our financial results reflect the financial reporting changes we discussed on our fourth quarter earnings call and in our March 24, 8-K. Prior period results have been recast accordingly.

I'm joined on today's call by Bob Sulentic, our Chair and CEO; and Emma Giamartino, our Chief Financial Officer.

Now please turn to Slide 3 as I turn the call over to Bob.

Thank you, Chandni, and good morning, everyone. CBRE continued to generate strong financial results while making important strategic gains during the first quarter of 2026. Together, our 3 services segments, Advisory, Building Operations & Experience, and Project Management grew revenue by 20% and operating profit by nearly 30%. Additionally, profits from our data center land development program were delivered earlier in the year than anticipated.

Our Resilient Businesses grew revenue by 18%. This reflects our strategy to grow businesses that are resistant to real estate cycles or benefit from secular tailwinds, which supports strong through-cycle growth. Simultaneously, our Transactional Businesses achieved their highest growth rate of the current cycle at 22%, reflecting our strategy to maintain and extend our market leadership position in sales, leasing, financing, and real estate development. These businesses generate excellent margins and cash flow while providing data and market insights that help us across CBRE.

Our work related to infrastructure assets has become a source of significant profits and growth spanning all 4 business segments. This consists of the services we perform for data centers as well as power, telecom and transportation assets, among others. This is also central to our strategy. We generated more than $3 billion of total revenue from infrastructure activities in 2025 and nearly $950 million in the first quarter.

Within the BOE segment specifically, we've created a dedicated critical infrastructure services business line. This business line includes work for data centers along with the telecom and power assets captured in the Pearce business we acquired last year. Revenue in this business line totaled $1.7 billion in 2025 and $580 million in the first quarter and is expected to grow in excess of 60% this year.

The strong momentum we saw during the first quarter in Infrastructure Services and across other parts of our business has continued in the early weeks of the second quarter. Considering this, we are upgrading our EPS expectations to a range of $7.60 to $7.80 for the year, which would result in more than 20% growth at the midpoint of the range. This assumes that the economic environment remains supportive.

Emma will describe our outlook in more detail after she reviews the quarter. Emma?

Thanks, Bob. Good morning, everyone. Our first quarter results exceeded expectations. Even without the pull forward of profits in our land development program, EPS beat our expectations by nearly 10%. In local currency, our Services segment delivered 27% operating profit growth. And as Bob mentioned, nearly 30% with the benefit of FX. Given this relatively large FX tailwind, I will reference growth rates in local currency, unless otherwise noted, to best reflect our operating performance.

Advisory Services revenue saw continued strength in leasing and accelerated growth in sales. Leasing revenue grew 18% globally and 21% in the U.S. Industrial leasing grew 24% in the U.S., as occupiers continue to act ahead of tightening supply for first-generation big-box facilities. U.S. office leasing revenue increased by 15% with broad-based strength across gateway and non-gateway markets. Additionally, data center leasing revenue more than tripled from last year's first quarter.

Outside the U.S., leasing revenue rose by double digits in Asia Pacific, led by Japan, while EMEA saw mid-single-digit growth. Global property sales revenue growth accelerated from Q4, rising 39%, led by the U.S. and Asia Pacific. U.S. property sales revenue increased 64% as all major property types delivered double-digit increases. Outside the U.S., growth was notably strong in Japan.

Mortgage origination revenue increased 53%, fueled by strong volumes from debt funds and the GSEs. Our loan servicing portfolio grew 5% to more than $460 billion. Advisory SOP grew 35%, delivering strong operating leverage.

Turning to the Building Operations & Experience segment. Revenue grew 16%. In addition to significant growth in our new critical infrastructure services line of business, which Bob described earlier, our local facilities management business continued to increase revenue at a mid-teens rate. In the Americas, revenue was up almost 30% as this region had 1 of its best start to a year. Enterprise Facilities Management revenue also grew by double digits, led by the technology, industrial and life sciences sectors.

BOE's SOP increased 23%, with operating leverage driven by an amortization cost reclassification. Excluding this change, SOP growth was in line with revenue growth as expected.

Turning to our Project Management segment. Revenue increased 11%, while pass-through costs rose 9%. Growth was underpinned by strong infrastructure activity. Among real estate projects, growth was driven by the technology sector and was broad-based, led by double-digit growth in Asia, the U.K. and the U.S. SOP grew 14%, reflecting operating leverage.

In the Real Estate Investments segment, SOP exceeded our expectations, driven by earlier-than-anticipated data center land sale profits. We continue to have embedded gains of approximately $900 million that will be monetized over the coming years. In Investment Management, recurring asset management fees increased driven by higher net asset value. However, operating profit declined due to lower incentive fees and promote income. We raised $1.3 billion of new capital during the quarter and ended Q1 with more than $155 billion of AUM, in line with Q4's level.

Now I'll discuss free cash flow and capital allocation. We produced $1.7 billion of free cash flow on a trailing 12-month basis, reflecting 78% conversion. As we've discussed previously, cash incentive compensation is paid out in the first quarter based on the prior year's performance. Due to the strong performance in 2025, free cash flow conversion was lower than the prior year's Q1. We expect to end in 2026 with free cash flow conversion around the high end of our 75% to 85% target range. We have repurchased nearly $540 million of shares year-to-date, reflecting our continued belief that our share price does not reflect the sustained long-term growth trajectory of our business.

As Bob indicated, we now expect full year core EPS of $7.60 to $7.80, up from $7.30 to $7.60, previously. The increase is driven by our outperformance in the first quarter and early part of the second quarter, momentum in our infrastructure services-related businesses and strong pipelines across our company. We are increasing our outlook for advisory and BOE. Advisory is now expected to deliver high-teens SOP growth. We are expecting approximately 25% SOP growth for BOE, which includes high teens growth due to improved performance in the underlying business and the remainder due to the cost reclassification. There will be an offsetting increase to depreciation and amortization, resulting in a neutral impact to net income. Our SOP expectations for project management and REI remain unchanged.

Our outlook assumes no material changes to the macroeconomic or interest rate environment. And in terms of seasonality, as a result of our first quarter outperformance, we expect to generate nearly 40% of EPS in the first half of the year, a higher percentage than we would typically achieve.

With that, operator, we'll open the line for questions.

[Operator Instructions] And our first question comes from the line of Anthony Paolone with JPMorgan.

Great morning. Nice quarter. My first question relates to just how you're thinking about the second half of the year because the first quarter and first half looks quite strong. And so wondering if you can get into a little bit more of your thinking into how much of that maybe was pulling forward stuff you thought would happen later in the year versus just outright strength and trying to get a sense of your conservatism or how you're thinking about 2H.

Sure, Tony. So we increased the midpoint of our guidance from $7.45 to $7.70 of EPS, as you saw. As Bob talked about and I talked about, we pulled forward our development profits that we expected to generate later in the year to the first quarter. So there's no impact to our guidance for our REI segment. .

In terms of the raise from $7.45 to $7.70, 1/3 of that is based on the outperformance in the first quarter in advisory and BOE and 2/3 of that raise is increasing our expectations for the remainder of the year. Within advisory, we're seeing strong pipelines going into Q2 and especially in the U.S. And so despite the fact that there's uncertainty in the macro, we are raising our outlook in advisory for the remainder of the year. But remember that, that growth will still decelerate going into the second half, given we're working against tough comparisons.

And then within BOE, we're raising our guidance for the remainder of the year slightly given the strength in both critical infrastructure services and local.

Okay. Got it. And then my second question really is the roughly $30 billion in pipeline and projects in Trammell Crow right now. Can you talk about how much is, say, industrial data center office and so forth? And just the prospects of that -- you mentioned the $900 million, just the prospects of that potentially just being further accelerated and seeing that as the year progresses?

Yes, Tony, the biggest portion of the Trammell Crow in-process portfolio and pipeline portfolio is in 3 areas. So industrial, multifamily and data center land. The thing to know about Trammell Crow Company, forever that business has been really good at acquiring land, entitling land, improving land and positioning land to be more valuable than it was before we got involved with it. That is a core competency of that business. And as we've moved through various parts of the cycle, we've aimed at business in areas that we thought had secular tailwinds.

So if you remember, coming out of COVID, CBRE was and continues to be a massive office building business. And COVID hammered everything about office buildings, but we moved aggressively into industrial land and multifamily land and multifamily development and industrial development. And within 2 years, we are back to record earnings. What you're seeing now is a considerable amount of investment in multifamily and industrial because we believe there is a dearth of new development that will be coming on over the next few years, and we're well positioned to do that. We've talked a lot about that.

But we also, around the country, have secured dozens of land sites that have the potential to be data center land sites over time. And we're working with various data center users, especially the hyperscalers to get that land entitled, get that land powered, get water into the land. And we think we'll have a relatively steady stream of opportunities and data center land over the next few years. It will be lumpy. For sure, it will be lumpy and as evidenced by the first quarter, our harvest so far this year is kind of what we thought it would be for the first year, and Emma gave you some perspective on that.

[Operator Instructions] Our next question comes from the line of Steve Sakwa with Evercore ISI.

Maybe, Bob, if you could just maybe elaborate a little bit on maybe some of the conversations that you and the team have had with some other C-suite executives just more around kind of where their head is on the macro. And I realize that the problems in the Middle East kind of occurred fairly late in the first quarter. So not much time to impact that business. And maybe that's tempering your enthusiasm for the back half a little bit. But just how are you sort of thinking about leasing and sales? And I guess what would it maybe take to create more challenges in that business moving into the back half of the year?

A bunch of different things going on there, Steve. So 1 is what's going to happen specifically with regard to the Middle East and things that are directly impacted by the Middle East. One is what's going to happen to the economy more broadly. Big theme, obviously, is what's going on with artificial intelligence, big theme is what's going on with job creation and all the old jobs disappear. So I'll comment on each of those. .

Starting with the economy. People feel generally good about the economy and less energy prices spike to the point where we end up in a situation where there could be a recession in parts of the world that are energy specific -- or energy sensitive, maybe global recession. I don't think people think that's going to happen, but they're worried about that. Most companies that we interface with are not particularly impacted by what's specifically going on in the Middle East. If you look at our company, none of our 4 business segments have as much as 5% of their profits in the Middle East. So it didn't impact us in the first quarter. It hasn't impacted us so far in the second quarter. Most of the companies that we're working with have not been massively impacted there or even all that materially impacted. And so they're watching like we are, but not that worried about that specifically.

The whole AI job creation or job destruction thing that is unfolding and ping-ponging back and forth, lots of discussion around that, lots of headlines around all the jobs that are going to be eliminated by AI. And so we've tried to dig deep and get some kind of empirical underpinning based on the business we do with companies. And I will tell you that kind of the market-facing headlines don't sync up very well at all with what's going on in our direct conversations with these clients.

So to give you a statistic, if really there was this view that all these jobs are going to be eliminated by AI, you would think that the users of space would be backing off on their leasing of space, not just currently, but you would think they'd be taking shorter-term leases for fear that they weren't going to need the space in the future. The average length of lease we're doing in office buildings today hasn't decreased by a day. It simply hasn't decreased. It's held steady for the last several years, and it's holding steady now. So to put your money where your mouth is, thing would suggest that the fears around job losses aren't quite as high as the headlines.

I can tell you for our company when we look at what's going on, we anticipate some job loss in certain areas. So we have AI initiatives underway to create efficiencies in the company. And so for instance, we have lots of people in call centers around the world, thousands of them. We think some of that -- we think we can rationalize that by maybe as much as 25%. We're going to be able to cut back on research. We're going to be able to cut back on our human resources or people organization. But the most profound thing going on in our business today as we've moved into critical infrastructure in a 3 billion last year in our services business is already almost $1 billion in the first quarter, we can't hire enough people. Our biggest challenge is across that business, we're having trouble getting the various skilled people we need.

And we're not alone in that regard. I'm sure that anybody that's following the market is seeing the same thing. So there's a myriad of things going on when we talk to others in our sector and others in the companies we serve. But net-net, I would not say there's a lot of fear about what's going on right now at least in the foreseeable future.

Great. Maybe just as a quick follow-up, Emma, I know you talked about the $540 million of buybacks. I think in the excel file, it showed $530 million of actual buybacks in the quarter. Could you either provide a share count or an average buyback price that's associated with that $500 million? I just want to make sure we have kind of our shares moving forward accurate for the model.

Yes, the price is in the high 140s. It's around $148. .

Our next question comes from the line of Stephen Sheldon with William Blair.

Really nice results here. First, I wanted to ask about training partnership with Meta around data center capabilities. And Bob, you're just talking a little bit about some of you can't hire enough people, I think, critical infrastructure. So I guess, do you see similar opportunities with other big tech and AI companies. And then as we think about something like that, is it more like a onetime revenue opportunity or there kind of recurring resilient revenue streams that as you kind of that could be built as you be supported by a partnership like this. I guess how we be thinking about these opportunities?

It's definitively not a onetime thing. We're building a capability there in multiple cities around the U.S. to recruit, train and place technical people to support Meta's data center initiative. And it is really, really hard to get those people and we're recruiting and training those people and sending them not only into CBRE's teams to support Meta, but into our competitors and others in the market. They viewed us as having a unique ability to hire and train people. We have a big operation in that regard. We hire something like 30,000 people a year, and so that we ended up in that position.

The bottom line is, with these companies that we interface with to do critical infrastructure and data center work, there's a broad base of things that we can do to support them, and this is something that surface because of our brand and our scale and our breadth here in the U.S. and in other places around the world, that we were well positioned to help them with, and we expect this to be an enduring service that we provide.

Very helpful. Maybe then as a follow-up, around the commentary on average office lease durations holding steady. Would be curious with industries, you guys have the flexible co-working business with industries. What have you seen there? Have you seen demand for more flexible space start to pick up? Is that something that could structure -- if, let's say, average lease duration start to pull back, would you even potentially see an uptick in demand for solutions like industrial that give companies more flexibility? I guess, how are you thinking about that?

Yes. The number of industrial units that we're adding is exceeding our expectation in underwriting when we bought the business. We're quite pleased with the pace at which we're adding those units, and we expect it to continue this year and into the foreseeable future. And the thing about that business is that I think anybody that's been following us knows we bought that business because we thought it was a premium offering that would be interesting to corporates in addition to small- and medium-sized businesses, and we're seeing that play out, just like we're seeing strength in every other part of the office market.

We're also seeing that Industries' capability as an experienced company is becoming an increasing opportunity for us with our corporate clients on the facilities management side of things. So yes, we're seeing good momentum there, and we're quite excited about it.

Our next question comes from the line of Julien Blouin with Goldman Sachs.

Congrats on the quarter. Clearly, a very strong first quarter for both investment sales and leasing. I guess, just curious on -- I know you say the pipelines continue to look very strong. One of your peers last week was commenting on the fact that they are seeing sort of client decision-making slowing down given the lack of visibility. And when you have sort of this sort of instability, long-term investments just becomes slightly harder to make. I'm just interested, are you seeing any signs of that? And if you do see -- if we do end up seeing an impact, is your expectation more that we could see that in EMEA and APAC versus the U.S.?

I think there's more worry in APAC, in Asia over the impacts of higher -- and Continental Europe a little bit over the impacts of higher energy prices. We really aren't seeing decision-making slowing down as it relates to industrial leasing or office leasing. Where we're seeing some slower decision-making is corporate capital investment, except for data center investment. And we think part of what's going on there is that resources are moving from other types of real estate-related capital investment to data center investment. But there could also be a little uncertainty that is creeping into.

Capital investment is 1 of those things that tends to slow down a little bit when there is some uncertainty. So we have seen some decision-making slowdown there. But really not on the leasing side. It hasn't surfaced yet for the -- it certainly hasn't surfaced in data centers. Obviously, Emma gave you those numbers, but it hasn't surfaced as it relates to kind of traditional warehouse leasing, traditional office leasing. Office leasing is strong all around the world, maybe a little less so in Europe. So we really aren't seeing yet that slowdown in decision-making. We'll see how things unfold, but we're not seeing it now.

That's very helpful. And maybe going back to the AI topic. I was wondering how your thoughts on the risk from AI have maybe evolved since last quarter. Do you still believe that your BOE segment is where some risk of disintermediation lies and less so on the capital market side. And I guess, how do you think about some of these headlines that are out there around sort of smaller AI-based start-ups that are reported to be gaining traction in smaller commercial real estate transactions and sort of bypassing traditional brokers in the process? And do you think there's a risk that if they prove themselves at sort of the smaller sized transactions like 6 or 12 months from now, they could be used for $10 million or $20 million transactions.

Yes. Well, I'll kind of hit that at the end here. I'll walk you through how we think about AI. So we start by thinking about it like we do with everything. We are very driven by our strategy. And as you know, our strategy is to be diverse across asset types, service types, geography and client types. And we very definitely have pursued this strategy of pushing resources into areas of secular tailwinds.

AI is creating a considerable secular tailwind for our company right now, and it's fairly broad-based. To the point where I think our move into critical infrastructure and data center services is going to be at least as profound as our move into outsourcing was in the '90s and early 2000s and much faster. Again, I want to reiterate some of the numbers we laid out, $3 billion. And this is independent of our land program in Trammell Crow Company. $3 billion of revenue last year, almost $1 billion of revenue in the first quarter, growing almost 50% this year, some very strong opportunities for us to do M&A in that area because of the track record we've established for M&A. This is a good home for targets. It's a good home for employees. And our brand and history positions us well with clients. So a lot of opportunity there. We think that's the overwhelming impact to our business.

The second thing we look at is what we can do to enhance the products we have. So if you go across our 4 segments, Brokerage, Building Management, Project Management. We are developing AI-enabled tools in every 1 of those areas. We've been able to attract some very strong people. Again, I think our brand and our scale has helped us. There's a lot of interest in real estate. We've been able to attract some technology people and then some AI people that have helped us there. And we're very bullish about the product suite we've developed. I think it's going to help us do more business than we've done before.

The next place is efficiency. This is where there's going to be some potential loss of employees. And I commented on this earlier. We're going to see some efficiency in our offshore service centers. We're going to see some efficiency in the research area and financial planning and analysis and human resources. There's a lot of those areas, and we think the gains will be fairly significant. It's going to take time to get those gains, because you have to develop the tools and then you have to implement the tools and then you have to reorganize yourself and limits. So there will be some eliminations there.

Where we think we're most protected, and I commented on this last quarter, is in our transactional businesses. So our investing businesses, our brokerage businesses, our development business, where you lead with strategy and negotiations and creativity. And I know there's been commentary. We've read it, we've seen it, "Oh my gosh, in the brokerage business, there's all this data-related and financial analysis related work that goes on, that's going to be squeezed down by AI, which is going to cause revenues to be squeezed down".

Well, if you really know how that business works, the vast majority of what we spend in that business goes to our brokers, the vast majority of what we spend. It doesn't go to financial grinding and analysis and data. We do a lot of work in data, we do a lot of work in financial analysis, but the majority of the expense is around brokers. And what the brokers provide is specifically the strategic help, this creative help, this negotiating help, the knowledge that goes beyond the data that's on the street. And that's why, over the years, when I've been asked, as you guys get bigger and stronger, you're going to use that leverage to squeeze down your brokers? The answer has always been no. The real value in that business comes from that creative strategic thinking. It's true in our investing businesses. It's true in Trammell Crow Company. That land development business is not going to be disintermediated by AI. It's going to be enabled by AI.

So we're not sitting here today. I'm sure there's going to be ways AI does stuff that it hasn't done before, and we're all going to figure that out over time. But we think we're reasonably well protected there. And then when you hear these anecdotes about some proptech company that says they're disintermediating the brokerage business, I would ask them to show you their revenue stream and see what you get.

Our next question comes from the line of Brendan Lynch with Barclays. .

Maybe a few follow-ups on the data centers. How is the Pearce acquisition trending versus the $90 million of EBITDA contribution you had originally anticipated for 2026. And maybe in terms of expanding the data center platform, what are some of the other verticals or some verticals you could potentially expand into?

Yes. I'm going to answer the back half of that question and Emma will [indiscernible]. Pearce, by the way, is not a big data center business. So it's telecom power, et cetera. But in the data center business, we're seeing big impact in our brokerage business. We're seeing big impact in our building operations and experience business where we formed this critical infrastructure line of business, and we're doing a lot of project work there, we're doing a lot of building management work.

We do work on over 1,300 data centers around the world. And then, of course, we're continuing to see in turn towns in our big project business, a lot of work, and we have opportunity to expand all those things. Turner & Townsend has primarily over the years, before we combined with them, been European, Middle East, Asia Pacific business with some activity in the U.S. Now they're growing rapidly in the U.S., leveraging the network of professionals that CBRE has.

On the contrary, our data center services, building management and small projects business in the white space has been primarily U.S., and now we're seeing a big opportunity to expand that in Europe and Asia. So those are some areas we're focused on. And I think Emma can talk about M&A. But I think if you look at the M&A strategy, we've had, you'd be confident that there's opportunity for us in those areas around the world. Emma, I don't know if you want to add to that?

Yes. Just to add on Pearce front and specifically to your question, it's performing well in line with our expectations. One important thing to note is if you take the $60 million of revenue that we forecasted for 2026, you can't ratably lay out across the quarters because there is a seasonal element business, given that they're maintaining cell towers and wind farms and solar. So the weather has an impact on the revenue here. So if you exclude Pearce in the first quarter, our BOE revenue growth was mid-teens. .

Okay. Great. That's helpful. And maybe just 1 follow-up. If I heard you correctly, it was about $900 million of embedded profit in the land bank. And you talked about dozens of other land opportunities that you could monetize in the future. How should we think about the steady state contribution, understanding it's going to be lumpy, but just your ability to acquire attractively priced land and add some value-add components to it and kind of keep that pipeline steady over the next couple of years?

Yes, the $900 million is not land profits captured in Trammell Crow Company. It's all profits captured in Trammell Crow Company, including the land. And the data center land opportunity, we have lots of sites that we have the opportunity -- the potential opportunity to monetize, but it's hard. It's really hard. You have to get approvals, you have to get power, you have to get water. And as a result, we have not been overly aggressive about forecasting what might happen there. .

We're very excited about the potential. We like the portfolio of sites that we have control. We have very little capital of our own investment in those, by the way. We really like the ability we have to work with hyperscalers and other data center clients to help them get land positions. But we're knowing how hard that business is and the scarcity challenges around things you need and the public opposition and so on and so forth, we're being very measured about the outlook we're establishing for that. But the $900 million is all the profits we see captured in Trammell Crow Company today. And we are filling that back up at the same rate. We're emptying it out, I guess, is what I would say.

Our next question comes from the line of Jade Rahmani with KBW.

I wanted to ask about AI and how you've rolled it out to your teams. Could you quantify what percentage of your teams are using it? And if you're limiting who can use it? And what are you doing to maintain the closed-loop system in terms of your data, where data is the linchpin of value in that business?

Jade, we're like everybody else. We're working our way through that and trying to figure it out. And you didn't say it explicitly, but you kind of implied it. One of the things we're watching very closely is it can get really expensive really fast if you don't control who has the access to use it and what they can use it for. And our Chief Operating Officer, Vikram Kohli, who's also over our cost control program and specifically has reporting up to him the technology part of our business right now is watching very closely how we're using AI and where we're using it. how we're using it to improve our products and where we're using it randomly around the system.

And as you can imagine, there's a lot of that. And I will just say broadly that we are controlling it controlling who has access to it, controlling what we use it for. And we're reasonably pleased like we have been historically that we're attacking new technology in a measured way where the benefit we're getting is in balance with the cost, we're expanding on it. But it's something you've got to watch really closely.

Just switching to transactions. Just wondering if you can give any comment as to whether the pipeline has slowed at all. driven by the increase in rates and also modest widening in CBRE borrowing spreads that we've seen.

So Jade, the pipeline hasn't slowed at all and going into Q2 the pipeline is actually stronger than we would have expected it to be at the beginning of the year. I think what's important to note about rates that we get asked about a lot. As long as the tenure has been around in the 4% to 4.5% range, we've seen sales activity and loan origination activity continue to grow and accelerate. So as long as there is a significant spike above that, we don't expect to see any slowing. .

Our next question comes from the line of Seth Bergey with Citi.

I guess, just wanting to go back a little bit to capital allocation. You did kind of the buybacks in the quarter. And has AI changed the way you kind of think about your capital allocation priorities as you think about buybacks or kind of resilient businesses that bolt-on? Or is there any sort of incremental investments or kind of AI companies that you would look to kind of add to the platform?

So our capital allocation priorities remain consistent and they have over time. We are always prioritizing M&A, and if anything, as Bob mentioned earlier, we see even greater opportunity for M&A at this point than we have historically, especially in the data center space. And so we will continue to prioritize M&A. But of course, as you've seen, as we're monitoring our pipeline and thinking about what we can convert in a year. We're going to fill that in the buybacks, especially when our price remains undervalued.

In terms of investing in AI, as Bob said, it's similar to how we invest in technology. And we're constantly organically investing through our CapEx in technology and now AI to support our business, and that will remain unchanged. I don't expect us to be investing in specifically AI companies, like we didn't make large investments in technology companies historically.

And then I guess you talked a bit about raising headcount where it makes sense and using AI to kind of increase productivity. It might be a little early, but do you have a sense of how that can kind of change the margin profile of certain segments kind of over time?

So it's very difficult to speculate how it will impact over time, but it will. I think it will take a number of years, and it will start in our functions. I mean, Bob mentioned our HR teams, our shared service teams, but even those head count reductions, we anticipate happening a few years from now versus immediately. So time will tell in terms of how that will explicitly impact our business.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

Great. Just a quick one. Going back to sort of the BOE. I think you mentioned earlier in the call that the sort of ex the acquisition, the revenue growth would have been, I think I heard mid-teens if that's correct. And I think the messaging has been that, that growth rate has been sustainable for quite some time. I guess my question is, is there a way to sort of double click and think about how much of that growth is driven by existing tenants expansion there versus sort of new businesses? And has that mix sort of shifted as the business has changed over the past couple of years?

So the way we think about that business is between our Enterprise Facilities Management, our local business and then now our Critical Infrastructure Services business. So Enterprise is a solid double-digit grower -- low double-digit grower over time. Local as it's been expanding into new markets, I mentioned earlier, we have still significant growth within the Americas. Our local business grew revenue in the Americas this quarter of 3%. So that's bringing that growth above that double-digit, low double-digit range. And then our Critical Infrastructure Services business, as you saw, has tremendous growth within it. So it is going to keep that growth rate within our BOE segment in that mid-teens range and potentially above over time. .

Helpful. And I guess my second question is, as I'm sort of thinking about whether it's advisory services versus BOE versus project management, at sort of this point in the cycle is advisory -- is the greatest margin upside still in advisory services because of potential transaction upside? Or how do you guys think about sort of the potential margin uplift in some of those other segments?

So advisory is nearing -- has already gone back to the 2019 levels of margins, which we think is a relatively steady state margin for that business. There will be incremental margin uplift throughout this year. But where we think the opportunity is, is within BOE and within project management. Those margin gains, as you've seen, are steadier and more incremental over time, but we see opportunity for those to increase. .

And we have reached the end of the question-and-answer session. I would like to turn the floor back to CEO, Bob Sulentic, for closing remarks.

Thanks, everyone, for joining us today, and we'll talk to you again in 90 days when we report on our second quarter.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.

Greetings, and welcome to the CBRE Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to Chandni Luthra, Global Head of FP&A and Investor Relations. Please go ahead.

Good morning, everyone, and welcome to CBRE's Fourth Quarter 2025 Earnings Conference Call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks and an Excel file that contains additional supplemental materials.

Today's presentation contains forward-looking statements, including, without limitation, statements concerning our business outlook, business plans, seasonality and capital allocation strategy as well as our earnings and cash flow outlook. These statements involve risks and uncertainties that may cause actual results and trends to differ materially. For a full discussion of the risks and other factors that may impact these statements, please refer to this morning's earnings release and our SEC filings.

We've provided reconciliations of the non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures, together with explanations of these measures in our presentation deck appendix. Throughout our remarks, when we cite financial performance relative to expectations, we are referring to actual results against the outlook we provided on our third quarter 2025 earnings call in October, unless otherwise noted.

Also as a reminder, our resilient businesses include facilities management, project management, property management, loan servicing, valuation, other portfolio services and recurring investment management fees. Our transactional businesses comprised property sales, leasing, mortgage origination, carried interest and incentive fee in the investment management business and development fee.

I'm joined on today's call by Bob Sulentic, our Chair and CEO; and Emma Giamartino, our Chief Financial Officer. Now please turn to Slide 3 as I turn the call over to Bob.

Thank you, Chandni, and good morning, everyone. We had a strong end to 2025. Fourth quarter revenue and core EPS rose by double digits with both reaching their highest levels ever for CBRE. Our strength was broad-based. We saw significant gains in sales and leasing in the U.S. and much of the rest of the world, and our resilient businesses continued to post double-digit revenue growth a trend we see continuing.

From a strategic perspective, we continue to build businesses that are benefiting from secular tailwinds. An example is the Pearce Services acquisition in November, which expanded our technical services capabilities in the digital infrastructure market.

Our Data Center Solutions business is another example. We've created an integrated offering for the most important hyperscalers. This business consists of services related to a data center's technical infrastructure called the white space and the building operating system called the gray space, along with traditional facilities management services. Revenue from this business is expected to reach $2 billion in 2026 and is growing at 20% per year. More broadly, data center and digital infrastructure work across our 4 business segments accounted for approximately 14% of our core EBITDA in 2025.

CBRE is positioned for strong, sustained growth. We are taking advantage of this circumstance to streamline our operations while investing to ensure this growth continues further into the future. We expect another good year in 2026 with core EPS in the range of $7.30 to $7.60, reflecting 17% growth at the midpoint of the range. This will be driven by healthy growth in both our resilient and transactional businesses.

Before I turn the call over to Emma, I want to address AI. We spend a lot of time thinking about this topic, and we know it's top of mind for investors. I'll begin with how we are using AI in our business today and we'll then walk through market-facing risks and opportunities that we see related to AI.

We are using AI today in 2 areas. The first is efficiency. We're deploying AI where its economic value clearly exceeds the economic value of traditional efficiency levers like offshoring. We're very disciplined about understanding the trade-offs before pursuing efficiency-related AI investments. The second area is developing a knowledge advantage to differentiate our product offerings. CBRE has more real estate data than any company in the world.

Historically, we have not been able to turn this enormous base of knowledge into a comparably large competitive advantage. With the use of AI, we are moving toward gaining advantages that are more in proportion to the data advantage that comes with our market position. We are encouraged in a balanced way by both of these AI-related opportunities.

With regard to the market-facing risks and opportunities, AI introduces to our business, we think about the risks in 3 broad areas: first, our transactional businesses. Second, the businesses in which we create and improve physical assets; and third, the businesses in which we operate assets. The transactional and investment work we do is most protected from AI disruption. For instance, we've known for some time that our opportunity in the brokerage business is enabled by but not anchored to market data. This same dynamic is in play in our REI businesses.

Clients engaged CBRE to plan and execute complex transactions because of our creativity, strategic thinking, negotiating skills, deep base of market knowledge and broad relationships. None of this seems likely to be replaced by AI in the foreseeable future.

The physical creation and improvement of assets, which relates to our development and project management businesses, entails a level of complexity across such things as site assemblage and entitlement, strategic planning, cost analysis, knowledge of vendor capabilities and pricing, construction supervision, negotiating skills and more. Because of that complexity and the physical nature of this business, we believe what we do is materially protected from disintermediation.

Finally, we have the operation of buildings, facilities and property management, which inherently involves both large amounts of data and information and has a labor-intensive element to it. AI can both enable and disintermediate the data and knowledge side of this. We believe the scale and complexity of our client relationships is helpful in mitigating this risk. The labor-intensive side will not be easy for AI to disintermediate.

On the market-facing side, we believe there is and will be massive opportunity with owners and operators of data centers and digital infrastructure. We serve those owners and operators in a myriad of ways. We have a strong start in building these capabilities as evidenced by the results we delivered in 2025. On balance, when you add all of this up, there will be risks, risk mitigants and opportunities in our business associated with AI. We are optimistic that the net impact will benefit CBRE in the long run. Early empirical evidence is supportive of this view.

With that, Emma will discuss our outlook and results for the quarter and the year in detail. Emma?

Thank you, Bob, and good morning, everyone. CBRE's strong fourth quarter saw revenue increase 12% with both resilient and transactional businesses delivering double-digit growth. Core EBITDA rose 19% for the quarter, while core EPS increased 18%. In Advisory Services, we saw continued double-digit growth in both leasing and sales.

Leasing revenue grew 14% globally, EMEA led the way with Continental Europe up 29% and the U.K. up 16%. The U.S. showed continued strength, growing leasing revenue 12% overall, supported by data centers, which more than doubled and industrial, which was up 20%. Demand for big box logistics facilities, a market segment where CBRE has a deep presence accelerated meaningfully, while 3PLs continue to exhibit a strong appetite for space.

In Q4, we saw large industrial occupiers act in advance of upcoming lease expirations, often upgrading their space. U.S. office leasing revenue remained strong, in line with our expectations, reaching record levels for both the quarter and full year. Year-over-year office leasing growth decelerated to low single digits versus a then record Q4 in 2024. We saw some large deals slip into 2026, which we expect to benefit our first quarter results.

In Capital Markets, both sales and commercial mortgage originations grew at high teens rates. U.S. sales revenue increased 27%, driven by office and multifamily. However, revenue from both asset classes still remain well below prior peak levels. Outside the U.S., sales were strong in India and the U.K. Mortgage origination fees grew over 20%, supported by a 23% rise in loan volume, led by increased activity with debt funds and CMBS. Advisory SOP grew 14%, outpacing revenue growth. Excluding the impact of lower escrow income, operating leverage was even more significant.

Turning to the Building Operations and Experience segment. Revenue growth was driven by local facilities management, data center solutions and contributions from the Pearce Services acquisition. As Bob highlighted, we are seeing the benefits of our investment in data center solutions, where revenue grew by more than 20%. Local Facilities Management continued to deliver strong mid-teens growth driven primarily by the ongoing expansion in the Americas as well as notable strength in Western Europe. Enterprise facilities management growth was led by the life sciences, health care and financial services sectors. BOE segment operating profit grew 20%, outpacing revenue.

Turning to Project Management. We delivered solid revenue growth underpinned by new real estate projects for hyperscalers in the U.S. and new infrastructure mandates in the U.K. public sector. The integration of Turner & Townsend and CBRE's Legacy business continues to proceed well and our project management segment is now largely operating as a combined business around the world. As we anticipated, margins declined compared with the prior year due to a few unusual onetime expenses. The segment delivered healthy operating leverage for the full year.

Turning to our Real Estate Investments segment. SOP showed strong growth, driven by the sale of data center sites in our development business. We still have embedded gains of about $900 million in our development portfolio. Investment Management operating profit was largely in line with expectations. Growth in recurring asset management fees was offset by lower incentive fees and co-investment returns than in the prior year. We raised over $11 billion in capital in 2025 and AUM ended the year at $155 billion, up more than $9 billion for the year.

Before moving to cash flow and capital allocation, I want to point out a couple of items that reduced GAAP earnings for the quarter. The first is the noncash impact of the buyout of our U.K. pension plan, which will result in future net cash savings. The second is an increased reserve for fire safety remediation in the U.K. development business. Together, these totaled $279 million. Without them, Q4 GAAP net income would have increased 43%.

Looking at our cash flow, we generated nearly $1.7 billion of free cash flow in 2025, reflecting 86% conversion on core net income, slightly above our 75% to 85% target range. Since the end of the third quarter, we have allocated more than $1.5 billion of capital. This includes about $1.2 billion for the Pearce Services acquisition and nearly $400 million for share repurchases. Share buybacks have totaled more than $1 billion since the beginning of 2025. Net leverage ended the year at 1.2 turns.

As Bob indicated, we expect to generate core EPS in the range of $7.30 to $7.60 for 2026. This represents 17% growth at the midpoint, supported by continued double-digit revenue growth in our resilient businesses and greater than through-cycle growth in our transactional businesses. In our Advisory segment, we expect low teens SOP growth should be supported by solid increases in leasing and sales activity. As we move further into the recovery cycle, transaction revenue growth will begin to slow from the prior year's elevated levels.

In our BOE segment, we anticipate mid-teens SOP growth driven by strength in our data center solutions business, our local facilities management business and full year contributions from Pearce Services. We are focused on sustaining the significant margin gains made in 2025, while we are investing in future growth. In Project Management, we expect low teens SOP growth. the complex integration of Turner & Townsend, and Legacy CBRE project management should be largely complete this year.

In real estate investments, we expect both investment management and development operating profit to roughly match our strong 2025 results. We continue to see demand from hyperscalers for sites that can be developed for data centers. However, as we've discussed in the past, it can be difficult to predict when we will complete these land sales due to the long lead times required to secure power.

As Bob mentioned, we're positioned for sustained growth and are taking advantage of this position to invest in our functional platform and products. This includes launching a finance transformation, which will include an ERP implementation, process standardization and organizational restructuring. We are also making further organic investments across many parts of our business to support the strong mid-teens EPS growth we expect to deliver this year and beyond. In addition to data center solutions, we're expanding our local business in the Americas which has grown revenue from $330 million in 2021 to $800 million in 2025.

Our industrious business is growing profitably and will expand to more than 300 locations by year-end up from about 200 when we acquired the business at the beginning of 2025. We're also building out our Americas infrastructure capabilities in the Project Management business. Traditional infrastructure is growing rapidly, but comprises far less of the segment's total revenue in the Americas than the 25%, it contributes across the rest of the world.

Finally, our strong growth in Q4 has continued through the first 6 weeks of the year across our Services segment. Advisory, BOE and Project Management are expected to deliver double-digit SOP growth in the first quarter. Advisory is showing particularly notable strength for Q1, historically its slowest period. As a result, we expect Q1 to comprise approximately 15% of our full year core EPS, a larger percentage contribution than in last year's Q1.

With that, operator, we'll open the call for questions.

[Operator Instructions] Our first question today is coming from Stephen Sheldon from William Blair.

I really appreciate the commentary around AI opportunities and risk, Bob, I would -- I highly agree with your take. Maybe just starting on capital markets. I mean, can you just give some more detail on what you're seeing in the pipeline and what you've baked into the guidance for 2027. It sounds like you're off to a strong start for the year.

And I guess how dependent do you think a continued recovery in activity will be on the interest rate trajectory? And specifically, do we need any additional rate cuts for activity to continue picking up in your view? Or are there plenty of other factors that support activity? Just generally, how are you thinking about it?

Yes, Stephen, we're not counting on that business being driven by interest rate cuts in 2026 at this point. What we do see is that the demand between -- or the balance between asking prices and offering prices has closed. There is capital available, even though not more inexpensively materially than it was recently. And there's a lot of buyers out there that want to buy assets and sellers want to sell assets. And as a result, we expect another good year for sales and financing activity in our business this year.

But it won't return. This isn't a business that's rapidly returning to peak levels like some of our other businesses. We've said in prior quarters that we expect this to be a slow, steady recovery. We still feel that way. Am in her prepared remarks noted that the first quarter has started out strong, and we're encouraged by that. But we don't expect to see a big rapid rise in that part of our business this year, just some nice double-digit growth.

Got it. That's helpful. And then maybe for Emma, and apologies if I missed this, but can you just give us some more detail on the onetime expenses, the weight on Project Management margins in the quarter? And will there be any flow-through impact from those, I guess, are they truly onetime for the fourth quarter? Is there going to be any flow-through impact into early 2026?

Sure. I'll start with saying we now -- we believe that those will be entirely reversed in the first quarter. So we'll see a nice margin expansion in project management. In Q4, as we were going through the balance sheet, we did take a pretty conservative view on some of the receivables on some of our larger projects. And we now think that will be reversed.

Next question today is coming from Julien Blouin from Goldman Sachs.

Bob, I wanted to dig into your comments around the brokerage businesses sort of being hardest to disintermediate by AI. I think broadly the thought out in the market was that this was maybe where the risk was greatest given the ability of AI to sort of empower sales lead generations, perhaps automate other parts of the sales process. Do you think there's a risk that AI maybe eats into some of these more market-making aspects of your brokerage business?

Well, Julien, we watched this business for years with people saying things like, gosh, with the scale you have, with the client relationships you have, with the data you have shouldn't you be able to shift the economics between the brokers and the company. That's been part of the dialogue over the years. And if you go back and listen to my comments over the last several years, I've always said that's not what we're trying to do. What we're trying to do is enable our brokers because what we know our clients want is certain things the brokers bring to the table that we enable, but the brokers bring to the table.

The ability to provide strategic input to big complex transactions. We're not we're not selling $2 million condos. These are big complex transactions that we're doing. The ability to negotiate experience in doing these big complex transactions relationships in the market. We don't get our brokerage leads online somewhere. We get our brokerage leads because of deep knowledge about the occupiers and investors in the marketplace that we serve. So we've become quite confident that, that business really is driven by the strategic creative thinking that our brokers do. And we think that's going to continue to be the case. And we haven't seen any evidence to the contrary.

What we're really working hard to do in thinking we're finally making some gains on using AI is to provide data to our brokers in a more efficient way and a more cost-effective way for us. It is expensive to collect and provide this data to our brokers from the different sources. We think we've turn the corner on that with the use of AI, we're pretty encouraged in some tools we've built. But the thing that the clients buy from us is creative strategic thinking, negotiating skills, et cetera. It's the same set of skills that go into our investment businesses, which are going to -- and that's development and investment management, which are going to make those difficult to disintermediate.

No, that's really helpful. Emma, I wanted to maybe check on the advisory services sort of incremental margins. They appeared lower this quarter. I know you mentioned the lower escrow income. I guess how much of that -- or what would the incremental margins have looked like absent the lower escrow income versus is there any sort of impact here from compensation or sort of fee pressures? And then what kind of incremental margins are you assuming in 2026 in advisory?

Julien, to answer your -- the second half of your question around escrow interest, without the escrow interest, which declined this quarter as interest rates declined. Our incremental margins were above 30%, which we view as very strong. And I think what we have to keep in mind is we have industry-leading margins in this business as we do across all of our segments and we consistently grow above the market. So we're consistently gaining market share. And to do that, we have to continue to invest in the business.

Just like Bob just talked about investing in our data for our brokers and our platforms, we're consistently doing that. We're also investing in talent to be able to outperform the market. You have to have the best talent in the industry. So we're making all of those investments and looking to 2026, we expect to continue to do the same.

Your next question today is coming from Anthony Paolone from JPMorgan Chase.

Bob, thanks for the comments on AI related to CBRE. Can you talk maybe a bit more about what you think the impact might be on your end markets, particularly around office and whether you see any long-term diminution in that just in terms of overall space needs and perhaps also in areas like appraisal, which can maybe get streamlined and perhaps reduce fees or something there?

Well, Tony, 2 very different questions. Let me start with office. If there are less office workers in the long run as a result of AI, there will be less demand for office space. That would be a long-term trend to unfold. What we're seeing right now is tech companies, financial companies, advisory companies, every kind of company you can imagine is using their office space to attract talent and make talent more efficient and effective and excited to come in and go to work. And that's created a lot of opportunity for us.

Over the last 5 quarters, we've gone from, well, on main and main, there's more demand for office space -- excuse me, main and main in the gateway markets. Well, then it's Main and Main plus and the gateway markets plus. Now what we're seeing is across primary and secondary and tertiary markets, a lot of demand for office space because workers have come back and companies are using office space to support those workers in all the ways I said at the outset of this answer.

In the long run, will there be less office users because AI disintermediates some of the work people do, that's possible. But what we're likely to see is a lot more AI-related workers backfill other types of workers that may go away because of AI. So it would be very difficult to sit here today and say there's going to be less office space as a result of AI in the foreseeable future over the next few years.

And certainly, right now, we're in one of the sweet spots we've been in, in my Enpower career for office-based leasing which is a wonderful thing for us because it's at a point in time when we're taking share in leasing. We've had some really good momentum there, particularly in the Americas.

The second part of your question, restate the second part of your question, if you would.

It was more on appraisals where...

Appraisals, yes. Well, we -- for years, we've been automating. If you go to Asia and Pacific, Australia, New Zealand, for years, we've had an appraisal business there that was heavily, heavily automated, radically more efficient in terms of the hours of the man hours that go in appraisal in here. And what we did is we built technology systems over there that caused the revenue per appraisal to go down for us, but the number of appraisals we do to go up radically, and that's been one of the more profitable parts of our valuations business around the world. So that cuts in both directions.

That probably is a part of the business that's subjected to disintermediation. And the question for us will be, given our scale and our ability to address will we be able to be a net winner in that subject to that set of dynamics, and we're feeling good about that. I think MR assessment is that our valves business is going to grow 10% next year. So we're feeling good about that right now, Tony.

Okay. And then just a detailed question, Emma, for you. I think there's a comment in the deck about OMSR net MSR gains and a change there. Can you -- is that in the guidance and you just haven't shown us like how you're going to disclose it yet? Or just kind of what's happening there?

It's not in the guidance yet. What we will do is we will provide historical restatement of our financials, including the OMSR change and the data center Project Management change going back a number of years. We'll do that well before the Q1 results. But it doesn't change the growth rates on the guidance.

Our next question today is coming from Steve Sakwa from Evercore ISI.

I think you had a comment about the data centers, I think, being up more than 20%. And obviously, there's a lot of discussion just around AI, data center growth in general and kind of whether we're in a bubble or not. But like what visibility I guess, broadly, do you have on the data center business inside of CBRE broadly? How far out kind of can you see that business? And are there any sort of longer-term concerns or issues that you see with that business?

Yes. Steve, I'm going to answer that question, if you don't mind. So you can imagine, given our business and given how much data centers have grown for us, how much time we've spent discussing that question. How enduring is the growth that we're seeing, what do we need to do to position ourselves to take advantage of all the demand.

And one of the very first things that we observed when we ask that question is we couldn't have imagined 5 years ago, if we were talking about the data center business being where we are today. I think we need to keep that in mind. We don't know where we're going to be 5 years from now. It may be -- we may be in something of a bubble or we may find that the explosion gets even bigger. What we know for sure is that given what's already in the pipeline today, we are having trouble keeping up. And others that do what we do are having trouble keeping up and based just on the duration of the work that's out there today, that's going to go on for a few years.

I had Vince Clancy, who is the CEO of our Turner & Townsend businesses in from London and he and I had dinner last night. And the #1 subject that he and I discussed was how are we going to get the talent we need to keep up with the demand we have in our data center and critical infrastructure businesses. That's a little bit at odds with the notion that, that talent is being disintermediated. What's happening is that talent being used to support the growth of AI. So we think there's going to be enduring growth there.

We have very quickly built this integrated data center solutions business that includes white space projects, gray-based projects, which is kind of the building infrastructure, MEP work, the white space is the technical work and then the legacy facilities management. As I said in my comments, that's a $2 billion business likely in -- $2 billion likely revenue business in 2026. And we have big, big efforts underway to grow that business both organically and in and finding resources, not the financial resources we need to grow that business, but the people resources we need is hard. So we're not sitting here today worried about a bubble or running out of opportunity.

By the way, we are not material players in the ownership of data centers. So if there's some bubble around that, that's not a big area of exposure to us. We do have this land data center land business within Trammell Crow Company, but we have very, very little balance sheet investment supporting that. and it's a nice add to our profitability, and we think it's going to continue to be. We have, I think, 30 or so sites that we have under control in various ways that we're working on.

But we just -- we don't see a scenario sitting here today just based just on what's in the pipeline and the duration associated with that. our direct interface with the hyperscalers and what we know about the capital they have available to keep growing and what they're asking us to do. We see this running for a few years.

And then, of course, once those few years ago in terms of creating data centers, there's going to be a huge amount of work to do to maintain those data centers, refit those data centers, manage those data centers. So we see this as a substantial part of our future and one that we are fortunate enough to have put ourselves in a pretty good position to take advantage of.

Great. Maybe just on capital allocation. You've been both acquisitive buying businesses, but also buying back stock. I know you don't put any of that into guidance as you set the range for '26, but just I guess, where is your head today either Bob or Emma, on kind of the free cash flow you have moving into '26. Are you tilting more in the buybacks given the recent selloff? Or is there a pipeline of deals that seems to be more attractive than buybacks?

So it's very consistent with what we've talked about historically and done historically. We have a strong pipeline. We're actively looking at target companies within data centers within facilities management within investment management within infrastructure, Project Management. And we have a strong pipeline. But as we've always said, it takes a lot for those to convert, and it's very difficult to anticipate which of those deals will convert into a transaction. And so we're going to balance that with share repurchases.

And our goal for -- on a consistent basis, is to at least to deploy the level of free cash flow that we expect to generate in a year. So given the levels of free cash flow we're generating, it's unlikely that we'll do M&A, do all of that through M&A. So we'll continue to buy back shares.

Next question today is coming from Ronald Kamdem from Morgan Stanley.

Two quick ones. First, it's a little bit difficult. When you -- I think you said that the company has sort of the most CRE data of sort of any other company out there and built through the cycles. I guess the question that we're getting is how -- if you have an AI tool out there can you just remind us what are some of the moats to being able to replicate that sort of data advantage? And how long you think it could take?

We think by the end of 2026, we'll -- there'll be concrete evidence that we've made some real gains in terms of extracting the data we have assimilating it and delivering it to our professionals in a way that we haven't done before. And that is being enabled by AI, and that's one of the areas we're most encouraged to buy. It's going to save us money in terms of accumulating the data, buying the data, and it's going to make our brokers more efficient in terms of using the data.

We're also, as already mentioned, we're using that same set of tools to meaningfully cut the cost of our research effort. So we expect concrete evidence this year. We're very excited about it.

Great. And then my follow-up is just on free cash flow. Maybe one, can you talk about the expectations for '26. And I think the '27 numbers came in at $1.7 billion versus $1.8 billion before. Is that sort of correct? And what sort of happened there?

Yes. And 2025, I think is $1.7 billion. So cash flow for 2025 was really strong. It was above the high end of our -- slightly above the high end of our range of 75% to 85% conversion on core net income. And the reason it was higher than our range is because of those -- we had a really strong year within development. And those gains convert to cash flow above 100%. So that's what drives us above the range.

In terms of what the delta between the $1.8 billion that we talked about and the $1.7 billion, that's simply some timing related to onboarding our large enterprise clients, so that's hitting working capital, and that will be reversed in 2026.

Going into 2026, we believe we're going to be solidly within that 75% to 85% range. that working capital headwind that we had at the end of Q4, again, should reverse in 2026. But we also do have another headwind in 2026 related to the cash compensation that we're paying in 2026 related to the really strong performance we had in 2025, especially within our development business.

Next question today is coming from Jade Ramani from KBW.

Could you comment as to whether you see margins in the BOE and Project Management business. Do you expect there to be room for further improvement? Do you see margin expansion in 2026?

Thanks, Jade. I'll start with BOE. First, I'll say, we're very pleased with where we -- where our margins ended up in 2025. The expansion that we delivered resulting from the big cost efficiency exercises we went through at the end of 2024, led to margin expansion beyond what we had expected at the beginning of 2025.

And again, like I said about our advisory margins, our BOE margins are industry-leading. So we put a lot of work into getting to those margins and focusing on operational efficiency to get there. We're also really pleased with the growth we delivered. It's exceptional growth in that business. It's above what we've delivered historically on an organic basis and definitely on an inorganic basis.

So going into 2026, we are very focused on proactively investing within our BOE business to make sure that we can sustain those levels of outsized growth. So there is some operating leverage in the plan in 2026, but that is being offset by the investments that we're making. So we're expecting BOE margins to be flat in 2026.

Going forward, because of these investments and because of the growth that we're putting into these -- some of these newer businesses like our data center solutions like Industrious, like local in the Americas, we should expect to see continued margin expansion, and we'll always be incremental but going forward beyond 2026. And then turning to project management, we are expecting some margin expansion in the year.

On the agency servicing business, there's been a lot of players that have received loan putbacks from Fannie Mae and Freddie Mac. That's when those companies for the originator servicer due to issues of fraud and the like to buy back those loans. Had CBRE experienced any of that? It doesn't seem that way from the disclosure, but I wanted to ask.

We have not seen any fraud in our portfolio, and we are evaluating it consistently on a quarterly basis like all of our competitors do and are very attentive to that. We have really a very rigorous underwriting process. And our loan loss reserves do increase. steadily as our loan book increases. And I think now it's just at about $70 million, but we haven't seen the spikes that you've seen elsewhere in the market. And we don't expect to.

Next question is coming from Alex Kramm from UBS.

Just coming back to BOE for a second. You mentioned local -- the local business continues to be. It sounds like one of the locomotives in that business. So maybe you can just expand on what you're seeing right now in the pipeline. Any changes in the competitive dynamics in that market? And since somebody just asked about margins, can you just talk about how the margins in the local business are trending relative to BOE overall?

I'll talk about the expansion and the strategy for expansion and then Emma can hit the margin question. So I want to start by saying this has been one of the gems for CBRE for years. And I'm not sure that people always recognize when we say enterprise facilities management and local facilities management, what the difference is. Enterprise facilities management is when we handle facilities typically for large corporates across large swaths of geography sometimes the entire world sometimes the U.S. or Europe and multiple asset classes that they have in their portfolio. So big, big portfolios of property sometimes hundreds even over 1,000 people assigned to those enterprise clients.

Local FM is when we do typically single complex assets, for instance, maybe a big museum or a particular hospital or we do a group of assets of a similar type within a confined geography, 1 metropolitan area, 2 very different profiles in terms of the portfolios you serve for those clients. Local includes within it also a lot of small project work. So roof replacements, parking lot replacements, et cetera. that's done on a principal basis. And that's typically add-on work. That's typically not in the base contract. It's incremental work you do and nice margins in that business.

That business was very centered in the U.K. and Ireland, and then we grew it into Continental Europe. And now we've started to build that business in the U.S. And I think Emma gave the numbers, it's grown from like $300 million to $800 million in the last 3.5 years. And that's the basic FM footprint that we've laid down doing those projects. Now we're starting to build into that business the incremental project work that's higher margin. That model is working exactly as it's supposed to work.

We're thrilled with what's going on there. It's 1 of the things that differentiates our business from others. And but it does take organic investment. We're growing that business mainly here in the U.S. organically. That's why Emma commented on some of the -- yes, we -- there's some inherent margin advantage as you take on those projects, for instance, but you also have to do an organic build out of that business. And that's where that's working. And it's driving a considerable amount of growth for the company.

And Emma, you might want to comment on the margins.

Yes. So overall, the local margins globally are slightly above what you see for the BOE segment. And then like Bob said, in the Americas, that margin is lower as they're building out those teams, expanding across the U.S. And so that's upside to both local and BOEs as that market matures.

Very helpful. And then just a quick follow-up on the data opportunity. It sounds like you just want to do -- you were going to do a lot more work there to enable your brokers, et cetera. But just -- maybe just 2 more questions here. On the savings side, Bob, you gave some opportunities to have savings. Can you expand on that a little bit? Maybe how much are you spending on external vendors? Do you think you can actually cut those out mostly over time as AI gets better? And then also you mentioned research. So is it just a reshaping of the research organization that you have internally [indiscernible] clients? Or is this really just to enable your business better?

Yes. So there are a number of things there. I'm going to start with an area where we can be empirical about the savings. We think we're going to be able to save over this year maybe extending into next year, about 25% of the cost of our research work using AI and the data that we assemble and manipulate through AI to support the research work. We get data from a lot of different sources in our brokerage business, and we spend money in a variety of ways there.

We're not specifically talking about where we're going to save, but through a combination of what it costs us to collect data ourselves and what it costs us to buy data, we will save money. And then we will be able to deliver that data. This is what we're most excited about in a more useful efficient way to our brokers in a more self-serve way to our brokers. So it's a combination of all those things. And that's, I think, as far as we want to go with that right now.

Our next question today is coming from Seth Bergey from Citi.

I guess just to start off, you've touched a lot on AI. And just going back to some of your comments on data and efficient ways for your brokers to kind of serve your clients. How do you think about kind of head count needs just as you balance kind of the accelerating advisory services business and then maybe some efficiency gains that you're kind of seeing with AI over the longer term?

Yes. So I'll talk about 2 kinds of headcount. We are not reducing broker headcount. We're adding brokers. By the way, another thing we have going on here in Dallas this week, we have our Americas brokerage leadership team assembled here in Dallas. I spent time with them today -- or excuse me, yesterday, we've rebuilt -- it's a spectacular team, and they are doing a really good job of adding talented brokers and taking market share in leasing in particular. And they're doing a good job with the team that we've built with -- that's been enabled by our digital and technology team of delivering data to our brokers in a more effective and efficient way, and that's what we were commenting on, that helps us recruit that helps us retain.

But the big product there is the talent of that group of brokers. And so that's all going exactly as we would like it to go. But the savings is in things like research, the cost of data and then the efficiency of delivering data to the brokers.

That's helpful. And then maybe just getting that kind of some of the things that you're kind of underwriting with guidance what kind of gets you to kind of the top end and the low end of the guidance range that you put out for the year?

Yes. Seth. So similar to last year, the range is almost entirely driven by the timing of our data center land site monetization. Like I said in my prepared remarks and we've talked about before, there is uncertainty around how long it takes to get power to these sites, and that really is the driver of the timing. And so to get to the high end of the range, it's really the -- almost all of what we have in our data center pipeline converts this year and then the low end is very little concern.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thanks, everyone, for joining us, and we will talk to you again when we report our first quarter results.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

fireside chat with CBRE Group. It's my pleasure to introduce Bob Sulentic, who is Chair and CEO of CBRE Group.

My name is Tony Paolone. I cover real estate stocks in research, and so we welcome you here for this event. Should I repeat myself for the webcast? Do you repeat myself? Okay.

Yes. Sorry, Mike was off. So I'll repeat myself. Welcome, everybody, for the last session of the day with Bob Sulentic, who is Chair and CEO of CBRE Group. It's my pleasure to welcome him and you all for a discussion here for about 30 minutes.

My name is Tony Paolone. I cover CBRE, among other real estate stocks in the equity research department. Let's get into things. I'll try to go for about 20 minutes or so and open it up for Q&A.

But first, Bob, give us a quick description in a couple of minutes, what CBRE does.

Okay. Well, first of all, Tony, thanks for having us here, and it's good to be with everyone. CBRE is a global commercial real estate services and investment firm that's beginning to migrate into infrastructure. In addition to commercial real estate in a reasonably meaningful way. We're the largest firm in the world that does what we do. We describe ourselves as being diversified across 4 dimensions. So the first one being asset type. So we do extensive work in office buildings, distribution centers, multifamily, health care buildings increasingly data centers, almost any kind of commercial building, you could imagine we do work in. The second dimension is the client we work for all types of occupiers and investors in commercial real estate.

And again, it would be hard to find occupiers or investors around the world that we don't do some work for. The third dimension is service type. So again, we do almost everything that you can do in commercial real estate. We do building management work, project management work, where we do capital improvements. We provide financing. We provide -- we're an intermediary on both the seller side and the buyer side for the sale of assets and the leasing of assets. And increasingly, we're doing technical services for assets, buildings like again, data centers. And then the fourth dimension is geography, and we operate in 100 countries around the world.

What's notable as it relates to our position in the market and our opportunity is that we're not just spread across those 4 dimensions, but we're in most cases across those 4 dimensions, we're the market leader. And so it means we have significant breadth and depth to go along with that breadth. And a very central part of our strategy is that we are trying to drive resources, the time of our management team, the focus of our business, our capital, our balance sheet resources into areas that are either resilient because they're a cyclical or countercyclical or they're resilient because they're in areas of secular tailwinds. And data centers are a great example of that. We do a lot of project management work in support of infrastructure, et cetera.

So being big across those 4 dimensions and deep across those 4 dimensions and then pursuing an expansion strategy into the areas that are resilient is characteristic of what we do. And what we like to say about our company is our opportunity is defined by the base of commercial real estate assets around the world, which is enormous, as you all know. And while we're very big for what we do, we have a very, very small percentage of the market in general across those 4 dimensions.

Yes. So maybe let's stay on this idea of resilient businesses because it's been such a big focus of yours for a number of years now. How would you characterize where CBRE is today? And should we expect the resilient businesses to continue to grow and things like the more traditional CBRE to be a bit smaller as a piece of the pie? Or are there opportunities across all of this?

Well, there's an important thing there that I want to hit before and then I am going to start with the resilient businesses. And we characterize our businesses as being in 1 of 2 types, either resilient because they are, as I said earlier, there counter cyclical or acyclical or resilient because they have these secular tailwinds. We do also have cyclical businesses, transactional businesses that we've been big in historically, and we're the market leader in. The move into the resilient businesses has been disproportionate to the transactional businesses and very steady over the last decade plus.

If you went back in 2010, '11, around in that time frame, we would have been around 30% resilient with the balance being transactional or more cyclical. Today, we're 60-40 in the other direction, 60% resilient. And even in this part of the cycle where we're experiencing really strong growth in our transactional businesses, our cyclical is -- or excuse me, our resilient businesses are growing as rapidly as our transactional business. Of course, when the transactional business has slowed down, the Resilient business is growing even more rapidly.

And in aggregate, throughout that entire period, we've grown on a compounded basis well into the double digits, top and bottom line. We would expect the trend for the relative balance between resilient businesses and transactional businesses keep moving in favor of the resilient businesses. The thing I wanted to come back to, though, is we're not trying -- we're not getting there by trying to get out of the transactional businesses. Those businesses are very good for several reasons. First of all, they generate a lot of profits and they have great cash conversion. The minute you make the money, you turn it into cash.

They have great margins, and they provide a tremendous amount of market insight for us. So if you look at our -- we're the largest broker around the world, we have 10 brokers. Everything we do, we gain information from about the markets around the world through that base of brokers. We have a very large valuations business. We're the largest value in the world. We learned a lot that valuations business that we use in other parts of our business. But we are disproportionately growing those resilient businesses, and we expect that to continue.

Does the customer base crossover? Is there an opportunity, because when you talk about these resilient businesses, a lot of them are just sheer additions of capabilities you have, but what is the customer crossover like? And do you have the opportunity to sell or all CBRE to these folks?

For much of what we do, the customer base is overlapping. So if you look at some of our biggest clients around the world are large, what we call, occupiers. So the biggest tech companies in the world, the biggest financial institutions in the world, big manufacturers, hospital systems, et cetera. Those systems need to have their buildings managed. They need to have projects on capital projects done. They also buy and sell and finance assets, and we provide those services to them. So the clients are common.

What's gone on with us in the last several years, Tony, is really accelerating now is we're working for another set of clients, sometimes within the same company and that is clients that do critical infrastructure and data centers. So if you went to the biggest tech companies in the world, the first group of services I talked about building management, project management, mortgage origination and so forth.

Those -- that's all handled by their real estate people. But the data center work is handled by a completely separate buyer within those organizations, a separate customer. And so we have built a client team that's separate to interface with that group of clients often within the same company.

I understand. Well, maybe let's stay on the data center piece because it is very topical these days. You all have given pretty specific numbers, call it, plus or minus 10% of the business effectively of CBRE is data centers. Can you maybe talk a little bit about, first, some perspective, where was that, say, 5 years ago maybe? Or how rapidly has that grown? And should we expect that to continue at that sort of pace?

Well, I say this only slightly tongue in cheek. If you go 5 years or before that, it wasn't a big enough deal that we kept track of it separately. So it's now a very big deal for us. We think last year, it was around 10% of our earnings. We think it's likely to go up this year and continue to go up in the future. And we do work for data centers across all 4 of our reportable segments. So I want to walk you through what those segments are.

So 1 is what we -- that thing we're historically most known for, that we've done the longest is Advisory Services. So that's brokerage work, valuations and so forth. We do -- we are a very large seller, lessor and mortgage origination provider of data center assets. Next is project management. That's our Turner and Townsend business. That's where you actually oversee the creation of assets or the improvement of assets physically, the construction of assets. In that area of our business, we are doing work, either program management or project management or cost consultancy on around 150 hyperscale type data centers.

So that's a very significant part of that business. We're also doing internal work internal projects, smaller project work in what we call the white space. The third area of our business is building operations and experience. That's where we manage the ongoing management of buildings. That's a very, very large business for us. And we manage around 800 data centers around the world. We physically manage the buildings of those data centers. And then the last area of business for us.

Our fourth there is what we call real estate investments. And we have an investment management business there, and we have a development business there. In our development business, we do a lot of land acquisition and development work, and we're developing and selling a considerable amount of data center land again into these large users. And then we have an infrastructure sleeve of assets that we manage within our investment management business, and we do some data center investment there. Data center investment as owners is not a big part of our business, but all the other parts are very large.

Right. I mean on that note, you recently -- it's not all data center related, but you've made a couple of acquisitions with the most recent being [ pierce, ] which you just closed on $1.2 billion. Can you maybe tell us a little bit about that and how it fits into both -- it sounds like digital infrastructure more broadly?

[ Pierce ] is digital infrastructure, critical facilities, projects and management companies. So they do work for things like telecenters cell towers -- sorry, to heat those words backwards. -- wind turbines, backup power generation systems, et cetera. They operate across the U.S. with and then off-site in addition in India with about 4,000 technicians, very technical work. It operates at a higher margin than the rest of our building operations and experience business. It's an absolute, as we like to say, bull's-eye for our strategy. It's technical services, it's infrastructure, it's secularly benefited. It meets our definition of resilient. It's had a strong growth profile, and we think there's significant opportunities to synergize it with other things we do most notably our data center work.

Got it. And tell us about -- you also purchased, I think it's about a year or so ago, Direct Line.

Yes. Direct Line has been along with Turner & Towns and 2 of the -- 2 of the biggest success stories we've ever had in terms of acquisition. What Direct Line does is project work inside what they call the white space in data center halls. So where the computer and data storage equipment resides, they do project work in there. So the wiring, cabling, racking. They do some HVAC work and electrical work and importantly, their client base is, we're not allowed to name the client base, but you would find it very familiar. It's the most important hyperscale companies in the world.

Got it. If we step back, I mean, it was great to hear about the data center and digital infrastructure initiatives in these deals and how it's across all of these functions. How about the rest of it when we think of just BOE and project management. You've talked about those businesses growing double digits and perhaps even maybe a bit more. But how do you get there? Like what are some of the sectors underlying? Because it sounds like the digital infrastructure piece, I think we can all get, but the growth across those businesses has been pretty strong and your outlook seems pretty strong.

Well, I want to highlight this, I want to talk about project management. So the industry that we kind of have been in forever. We and our competitors have always done project management. But the way we've done it is it's what we call an attach business. So if we're leasing on behalf of tenants and we signed a big lease, there's project work that needs to build out of the space for them or if we're representing a building as a landlord, same thing. There's leasing.

There's fit out work that needs to be done when we represent corporates in handling their real estate. They have a lot of project work that needs to be done in conjunction with the ongoing management of facilities. Those businesses were typically attached to those parts of the business as it wasn't managed centrally. Several years ago, we started building a relationship with this company, Turner & Townsend, their approach to project management was very, very different. It was an integrated enterprise. They have global leadership. They operate in 60 countries. They did big complex projects for the same client base often. So for corporates. They would do the big work that we and our direct competitors weren't able to do.

But beyond that, they did energy-related work infrastructure work. So for instance, Turner & Townsend, is doing big program management at 40 international airports around the world. I mentioned already that they do a lot of these hyperscale data centers. They're doing a nuclear power plant in the U.K. So they're doing work in areas that go beyond what we were doing. So they do 1 of the things that we're so interested in doing when we do M&A, they expanded our total addressable market.

They moved up the technical game, which we want to do. The work they're doing is very much in secularly favored areas. So we've ended up with this business. When we bought Turner & Townsend, they had grown our CFO here and Head of M&A is Emma. Their growth rate for the 5 or so years before we bought them, was 15% and sense it's been 20%. So we've been able to take Turner & Townsend, bring them into the CBRE family and give them access to clients that we had.

They can do things for those clients. We couldn't do, and their growth rate was already very strong. It's kind of 20%. That's now -- that project program and cost consultancy business is now a $3.5 billion business with 22,000 employees, Completely unfamiliar to anything that was going on in our sector before we bought them.

Wow. Interesting. I mean I think it's a great example about just your ability to kind of bring something on to the CBRE system and drive more revenue and production out of the people. How should we think about the white space that you see for CBRE, whether it's geographic, other capabilities we're not thinking of that you may or may not want to tell us about that you'd like.

There's 3 Things I wouldn't talk about, but...

Okay. what would you?

Well, so first of all, I want to go back to something I said at the outset. We define our opportunity by the base of commercial real estate assets around the world. And you hear that and you say, okay, I know what commercial real estate is. But this is what I always tell our people when I go around to our offices and ask, "Well, what do you think the opportunity for CBRE is? So step back and just think for a minute, you're in this city or any other big city in the United States around the world, and you look out the window and you see all these office buildings, way more office buildings than any 1 company comes close to managing.

What you don't see is you don't see any distribution centers. You don't see any data centers sitting here. You don't see any hospitals sitting here. You do see multifamily institutional quality multifamily. You don't see manufacturing facilities. We do work for all those things. And we don't just do it in this city, we do it all around the world. There is so much that we can do that we haven't yet gotten to because that base of assets is so big, and we're expanding it now. Data centers weren't in the discussion before. Certain geographies weren't in the discussion.

When I first came to CBRE through the acquisition of Trammel Crow Company 2006. Japan was kind of an afterthought for us. It's our second most profitable country operation in the world right now. We have a very large business there. that was white space. So 1 of the things CBRE has done quite well is across those 4 dimensions, client type, geography, service type and asset type, we've expanded the envelope that we're working in, expanded the total addressable market and moved into that total addressable market pretty aggressively as we did with the acquisition of Turner & Townsend, as we did with the acquisition of Direct Line giving us in the -- another kind of white space, the data center-wide space.

So that's very central to our strategy. And we have a massive amount of -- I can tell you I've been in the business for 41 years. Between Trammell Crow Company and CBRE, I've been fortunate to be a CEO for 21 years. And I've never felt so confident in our ability to grow the business as I feel about CBRE going into 2026.

That's very good to hear. In terms of that growth, maybe shift this over to capital allocation because you do produce a lot of cash. And so you're excited about the business. You see great prospects. You've already made a big acquisition pretty recently, but what do you do with all your cash as you look ahead?

We have -- and again, I mentioned Emma earlier, she runs that for us. It's -- and we really invest our capital in the following ways. Number one, we have CapEx. So computers, equipment we use to run our business, that's pretty standard. Everybody does that. M&A. We are a consistent M&A company. That's core to our strategy. We build our business through M&A. We grow our TAM through M&A. We have a very defined set of places strategically that we're looking for to grow our PAUSE business through M&A.

We -- I would tell you the Pierce acquisition couldn't have been more on target for what we want to do. The Direct Line acquisition could not have been more on target for what we want to do. And we have a handful of other things we're looking at that. Beyond the CapEx, that's the #1 place that we try to aim our capital. We have a sizable real estate investment business that generates really good opportunities for us to invest either in funds that we manage, co-invest or directly into real estate assets through our real estate development business, and we're constantly looking for opportunities to invest there.

Particularly when we see opportunities as we have the last couple of years that others in the market are on the sidelines and not investing in and that's played out very well for us over the last 10, 12 years, and we continue to be excited about that. And then as you know, when we don't have opportunities in those areas, we will buy back our stock if we believe it's trading below its intrinsic value. And we believe it is now and it has been for the last several years, and we've invested several billions of dollars in buying back our stock.

Great. Before I open it up for some questions, I would like to just hit on the transactional business. Leasing, capital markets, you guys had a very strong leasing quarter in 3Q. I think we all got a little surprise on the upside with strong industrial trends. How do things feel in both of those segments as we start to look ahead?

I'm going to comment on it in 2 ways, Tony. So first of all, we -- our leasing business is a really, really important business. So as I mentioned earlier, it's excellent cash flow generator. It has great cash conversion. It's got great margins. It provides tremendous strategic insight for us in terms of what's going on with occupiers and investors in real estate around the world and we've really focused on the growth of that business. So we've upgraded our talent. We've upgraded our lease management platform.

We have taken -- very hard to figure out if you're in the brokerage business over a year or 2 if you're taking market share because it ebbs and flows. But it's so clear what's happened in that leasing business the last couple of years. We have definitively taken market share. And so that's part of the leasing story that I wanted to mention. The other part of the leasing story is what's going on in the market is good. I'm going to start with office buildings. We went through this COVID and then post-COVID [ era ] where we kept saying our return to the office, return to the office. I think we're beyond return to the office.

I think where we've gotten to now PAUSE is it's more of a return to the mean. People are starting to think about office space the way they thought about office space historically. But I'm going to add 1 component to that. Just like if you look at distribution centers and see how much more integral they are to these e-commerce companies than warehouses used to be when I started office buildings and your company is Exhibit A, by the way, office buildings have become incredibly important to companies in terms of creating an experience for their employees. Making their employees productive, making their employees excited about coming to work.

The base of chief executives across the United States and around the world have been beating the come back to the office drum for a few years now. And what we've all figured out is none of those mandates work nearly as well as having an attractive place for people to come to. And that attractive place is partly about the physical plant, but it's partly about the experience you operate. And in that regard, we went out and bought a company called [ Industrious. ] That's another company we bought in the last couple of years, which is an office building experienced company and flex company.

And we now have that offering to give our clients that others don't have. But the office building trajectory for leasing is good. We've been through a little bit of a soft market after years of a great market on industrial or logistics leasing, that's coming back. We had a great third quarter, but everybody had a great third quarter. If you look at [ Prologis, ] the biggest industrial REIT, they had a very strong quarter. And what's happening is some of the big users, some of the big names that were out of the market are coming back. They burned through their inventory and they're coming back into the market. We're expecting that by midyear next year, the low point in the kind of somewhat down cycle we've been through will have been met and we'll be coming back up. So we're pretty bullish about industrial now, too. And we don't even need to talk about data center leasing

Right. That So let's get some questions here. We start there.

Can you talk a little bit about this commercial real estate cycle, what inning are we in? Where did it start? How long Will it last or...

Yes. We used to get that question and we used to think it was 1 thing, right? We know now it's not. We know now that the capital markets don't move in sync necessarily with the leasing markets and the office leasing market doesn't move in sync with the industrial market, et cetera. What I would say is the leasing markets are back pretty strong. We think they're going to continue to be strong. But they've probably come back closer to peak than the capital markets side of things.

Capital markets is getting stronger, but we anticipate a slower, more steady recovery coming out of most downturns, you have lower interest rates and -- or you have interest rates that you can bring down, higher interest rates that you can bring down to push the market forward. That's really not seeming to be the case in a big way this time around. So we think the market is going to recover more slowly. Credits coming back into the market. There is a huge amount of pent-up sell demand and buy demand, lots of capital on the sidelines.

You hear that phrase to [ wallet ] capital. It's true. We're in the investment management business. We've got billions of dollars of capital we'd like to deploy. We're in the development business. We've got many assets that we hold that are great assets that we're going to sell at the right time. But that's all the gap between buying and selling prices or they ask by ask bid by [ sellbid ] is closed. So we think it's going to be more of a long, steady come back. We expect next year to be better than this year was, but it will be slow. Does that answer it?

Not exactly.

Give me a follow-on question.

Well, so do you think you'll grow organically total company faster next year than this year?

I don't know that we'll grow faster. I think we'll grow organically next year. And we'll be very happy if we grow as fast organically next year as we did this year..

Can you do add that.

We haven't finalized our thinking on that yet.

Just focus back on the hyperscale, the spending so much money and you look like you're going to that business just tell us do you turkey same centers? Or is that contemplated with the acquisitions? As well. Can you tell us how real estate and power seems to be so important that goes in, you have a relation, but if you're looking at that business, can you tell us about backlogs and margins or some brands you consider near.

So that was a lot of questions. So when you say turnkey, I don't know we're not an owner of data centers. We manage them. We help them be built. We project manage the building of them. We do project work inside the data centers, inside the white space where the technical equipment is, but we don't own it. We can do turnkey. So we can do everything from buy the land to build the building to finish out the -- not the equipment in the building, but the connect the equipment in the building and put the HVAC and electrical infrastructure, power infrastructure into the building, we can do all of that, and we do all of that. But we generally don't own them. And what was your other question? PAUSE.

Relationships with any power real estate [indiscernible].

Well, we have a land development business, and we have developed acquired and developed a good number of data center sites. And there's been a radical change over the last couple of years in the ability to get power for those sites, not surprisingly, that's the big bottleneck now. And we do work with the utility authorities, and we do have, we think, some unique capabilities in that area and some unique relationships. And we also have some relationships with the hyperscalers that allow us to be more productive because it's like so many things in life.

If -- in State x or CTX, if you go to the power authority and say when to build a spec data center, they're like there are a lot of those out there now. PAUSE if you go and say we are coming with this user that you want in your state or in your municipality, you have a very different profile, and we've learned to work that circumstance effectively.

Question here?

Can you elaborate on cross-sell opportunities to a little bit on the last call, so the TNT, whether the as to Pro build-to-suit industrious like PAUSE how long take to set yourselves up more initially execute on the cell? And then how big of a needle.

Yes. It's a huge needle mover but not in the way people think it is. So we typically wouldn't expect our facilities management people to go in and say I'm going to sell you a package of facilities management services. And while I'm doing that, I'm going to sell turning towns into you. What would happen is you'd have a big corporate. Now sometimes we do sell them in a packaged way. And we've got quite a bit of business like that. But what would typically happen and what we've learned is particularly powerful in what our clients want is -- and their consumers like we are.

They think the way we think. So if we do facilities management work for them, and we've done building the leasing work for them or tenant rep work for them. And maybe they've hired us to do valuations work. And they've seen us do a bunch of great work for them. And these are typically big complex buys, right? And then they need project management work they immediately think of us, right? That's where the cross-sell comes in. And that's been a very powerful thing for us. That's why when we acquired Direct Line and we did our due diligence on Direct Line.

And we went to the hyperscalers they work for. They encouraged us to buy Direct Line because they thought having direct line on the CBRE platform provide things for them, for one thing, capital, the ability to expand the ability to invest in the business. When Vince Clancy, the CEO of Turner & Townsend, goes in and he has access to a lot of the senior most corporate real estate people in the world.

And he says, we're now at CBRE and we can do all this stuff for you that we do in project management. But by the way, I can tell you after they are this other stuff. That builds awareness and increases the odds. But Vince won't usually walk out the door with a contract to sell his product and to sell facilities management, if that makes sense. Sometimes you will...

All right. Anything else here before I throw one last one out for...

Is that some of the technology that you gave the example curious what other areas to either internal applications and packaging.

The biggest one I'd point to is data market we all like to throw around the term data, but what it really is, is knowledge of what's going on in the base of commercial real estate assets around the world. So we are by far the biggest broker in the world. We have 12,000 brokers doing transactions at every type you can imagine, every type of building you can and we have massive amounts of that data. We're the biggest value in the world.

We have massive amounts of information about the value of buildings around the world. We have an investment management business with about $155 billion of assets under management. We have huge amount of information about that. Here in the U.S., we have the biggest development company in the world, Trammel Crow Company. We do an enormous amount of research in underwriting every project we do. We manage literally 8 billion square feet of real estate around the world. That's the property and facilities management. We know what's going on in those buildings, whether it's multi-tenant or individual user.

All of that knowledge is available to us, and we are increasingly working very, very hard to use that knowledge to support our business as we go to market but also to support our clients.

One thing I'll wrap up here is, I think, from basically out of time. But anything misperception wise related to the stock or the company that you think stands out to you that you want to highlight that we're just not focused enough on.

I think this scale across 4 dimensions and the ability that gives us to push resources into secularly benefited areas. I think that's known a little bit, not the degree to which it should be known. I think there's a lack of appreciation for how much we've expanded our total addressable market. That's a very, very big part of our strategy and how we've been able to push into areas that we weren't in before significantly through M&A.

I think another thing is people -- you often hear people and you'll see when the journalists write about us, they'll say, such and such brokerage as such, et cetera. Well, we are a big brokerage company now. But we -- as I said, we manage 8 billion square feet of space. We have 22,000 people in our project management business around the world. We manage 800 data centers around the world. We're moving into critical infrastructure. So we do far more than just those transactions.

And it's not just that we do far more the scale of what we do. The financial magnitude of what we do is significantly greater, I think, than the general awareness would suggest it is.

Great. Well, we appreciate that. Thanks, Bob, for doing this. And thanks, everybody, for joining.

Thank you.

Greetings, and welcome to the CBRE Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to your host, Chandni Luthra, Global Head of FP&A and Investor Relations. Please go ahead.

Good morning, everyone, and welcome to CBRE's third quarter 2025 earnings conference call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks, and an Excel file that contains additional supplemental materials.

Today's presentation contains forward-looking statements, including, without limitation, statements concerning our business outlook, business plans and capital allocation strategy, as well as our earnings and cash flow outlook. These statements involve risks and uncertainties that may cause actual results and trends to differ materially. For a full discussion of these risks and other factors that may impact these statements, please refer to this morning's earnings release and our SEC filings.

We've provided reconciliations of the non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures, together with explanations of these measures in our presentation deck appendix. Throughout our remarks, when we cite financial performance relative to expectations, we are referring to actual results against the outlook we provided on our second quarter 2025 earnings call in July, unless otherwise noted.

Also, as a reminder, our resilient businesses include facilities management, project management, property management, loan servicing, valuations and other portfolio services and recurring investment management fees. Our transactional businesses comprise property sales, leasing, mortgage origination, carried interest and incentive fee in the investment management business and development fees.

Before we begin, a brief technical matter. We want to note that we recently responded to a comment letter from the SEC regarding our presentation of net revenue. Going forward, while we will continue to provide supplemental information to help you understand the portion of our revenue that is pass-through in nature, our formal reporting will focus on gross revenue.

I'm joined on today's call by Bob Sulentic, our Chair and CEO; and Emma Giamartino, our Chief Financial Officer. Now please turn to Slide 3 as I turn the call over to Bob.

Thanks, Chandni, and good morning, everyone. CBRE continued to produce excellent results in the third quarter. All 4 segments delivered strong growth and operating leverage, and we exceeded expectations we had going into the quarter.

We often talk about our breadth and depth across asset type, client type, line of business and geography. This breadth and depth gives us scale that supports our strategy in many ways. These include recruiting from inside and outside the sector, developing integrated solutions for clients, making capital investments and creating an information advantage. Our scale is particularly helpful in driving growth in areas that are either secularly favored or cyclically resilient.

This came through clearly in our third quarter results. The data center asset type and related client group provides a good example. We produced nearly $700 million of revenue from data centers in the third quarter, 40% more than in 2024's third quarter. This contributed to profitability in all 4 segments accounting for about 10% of overall EBITDA for the quarter.

From a geographic perspective, Japan and India are particularly well positioned for sustained secular growth in commercial real estate services. We have large businesses in both countries, and in Q3, their combined revenue rose more than 30% to nearly $400 million.

Given our results year-to-date and momentum in our business, we are raising our full year core EPS outlook to $6.25 to $6.35, from $6.10 to $6.20. Emma will discuss our outlook after she reviews the quarter's highlights. Emma?

Thank you, Bob. Good morning, everyone. Our third quarter results exceeded expectations across the board, highlighted by 34% growth in core EPS and 19% in core EBITDA. We delivered double-digit revenue gains in both our resilient and transactional businesses, underscoring the balanced strength of our business.

Throughout my segment discussion, I will cite growth rates in local currency. This does not reflect the 1% to 2% FX benefit to the USD growth rates. As Chandni mentioned, we will no longer report net revenue. However, internally, we continue to focus on revenue excluding pass-through costs as our primary growth metric as we believe it best captures the value of the services we deliver to our clients.

Now I'll detail our performance for each segment, beginning on Slide 4. In Advisory Services, revenue growth exceeded expectations, rising 16%, led by outperformance in both leasing and sales. Global leasing revenue rose 17%, accelerating from the second quarter despite a tougher year-over-year comparison. In the U.S., leasing reached its highest level for any third quarter, growing 18%.

U.S. industrial increased 27% as third-party logistics providers continued to take more space and larger occupiers came back to the market. Data center leasing picked up materially, resulting in a more than doubling of revenue over last year. In addition, U.S. office leasing once again rose by double digits. Outside the U.S., APAC leasing was strong driven by India, Japan, while results were mixed in Europe.

Our property sales business delivered 28% revenue growth. Like leasing U.S. sales saw strength in office, industrial and data centers. Outside the U.S., we saw particularly strong sales growth in Germany, the Netherlands and Japan. High-teens mortgage origination revenue growth was driven by an increase in origination fees, primarily from CMBS lenders, banks and debt funds. Advisory SOP grew 23%, reflecting strong operating leverage.

Turning to our Building Operations & Experience segment on Slide 5, we saw 11% revenue growth. In the enterprise business, growth was driven by work for data center hyperscalers as well as new client wins and expansions in the technology, life sciences and health care sectors.

Our local business achieved a mid-teens revenue increase, supported by continued growth in the U.K. and the Americas. Revenue in the Americas was up 30%, reflecting strong market share gains for this business. BOE SOP grew 15%, delivering operating leverage driven by continued cost efficiencies across the segment.

Please turn to Slide 6. In the Project Management segment, revenue increased 19%, while pass-through costs rose 23%. We achieved broad-based double-digit revenue growth supported by the U.K., the Middle East and North America. Legacy Turner & Townsend revenue in North America has more than doubled since 2022, demonstrating the benefit of being part of the larger CBRE platform. And we see significant runway for further gains in this large, lightly penetrated market.

Across client sectors, we saw strong activity with the U.K. government, reflecting a large national health care mandate and ongoing demand for hyperscalers for data center projects. This growth was slightly offset by continued softness from certain technology clients that are focusing capital spending on AI investments. Project Management SOP grew 16%, delivering operating leverage when viewed as a percentage of revenue excluding pass-through costs.

In Real Estate Investments on Slide 7, segment operating profit was up 8%, in line with our expectations. In investment management, we raised $2.4 billion of new capital in the quarter and are on track for a strong fundraising year. AUM ended the quarter at approximately $156 billion, up $500 million for the quarter. AUM growth in the quarter was tempered by currency headwinds. Absent these headwinds, AUM increased $1.3 billion.

In development, operating profit also met expectations. Our strategic land acquisitions in recent years coupled with our land development and entitlement capabilities position us to capitalize on demand for large data center development sites. We expect to monetize several of these sites later this year or next year. We continue to believe our development portfolio has more than $900 million of embedded profits that will be monetized over the next 5 years. As always, the timing of asset monetization, especially between quarters, can be difficult to predict with precision.

Now I'll turn to our balance sheet and capital allocation on Slide 8. In keeping with our expectations of better full year performance, we now expect to generate approximately $1.8 billion of free cash flow for the year. Net leverage stood at 1.2 turns at quarter-end, and we continue to expect to delever through the end of the year.

Please turn to Slide 9. As Bob mentioned, we've raised our full year core EPS guidance to $6.25 to $6.35, reflecting our outperformance to date and confidence in our fourth quarter pipeline. Our outlook includes contributions from the data center site dispositions in our development business. The midpoint of our new guidance range reflects 24% growth and would be more than 10% above our prior peak EPS. This is a notable outcome produced within only 2 years of the commercial real estate market trough.

With that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question today is coming from Anthony Paolone from JPMorgan.

Just have a question as we start to look to the rest of the year and just the strength that you had in 3Q. Do you feel like anything got pulled forward from the fourth quarter, or perhaps how we should think about when or in what business lines do comps start to get more challenging or start to normalize from these pretty high levels of growth?

So Tony, we haven't seen a significant pull forward across our segments. We are seeing strong momentum. But as you noted, we are starting to come up against some tough comps.

So going through each segment, starting with Advisory. On the leasing front, we are -- we had a tough comp in Q3, and that continues in Q4. On the sales front, that you've seen that pick up pretty significantly in the third quarter, going into the fourth quarter, we continue to see strong activity. But just as a reminder looking against 2024, Q3 sales growth was 14% and Q4 sales growth was 35%. So that growth rate is going to start to decelerate somewhat into Q4.

And then on the Project Management front, I do want to note that we have a very tough compare in the fourth quarter. In the prior year, our SOP grew 30% in the fourth quarter.

Okay. And then just my follow-up, can you maybe comment on the M&A pipeline, especially given the free cash flow? And also whether that had any impact on not buying back stock in the quarter?

So Tony, our capital allocation priorities remain as they've always been. We prioritize M&A and co-investment into REI, and we use the remainder of the free cash flow that we generate for share repurchases.

We do continue to believe that our share price is undervalued, and we'll buy back shares in the absence of M&A. As you know, I can't comment on particulars of what we're targeting, but we continue to focus on the areas of our business that are resilient, that can benefit from secular tailwinds. And we're looking for targets that are extremely well operated that can really benefit from being a part of the CBRE platform.

We're extremely patient to find the right deals. We're actively advancing our M&A approach, improving our integration, improving our identification of new deals. And we're very confident that we will find the right targets over time.

Our next question today is coming from Julien Blouin from Goldman Sachs.

Congratulations on the quarter. Bob, I wanted to ask you, Advisory sales results were very impressive again this quarter. But just taking a step back, there appears to still be this latent need to transact from both older vintage real estate funds that need to return capital to investors to start their next fundraising cycles, and then more recent vintages are still sitting on a lot of dry powder. So I guess, taking stock of all that versus what's sort of happening in the macro, where are we in the CRE transaction market recovery? And how much more room is there to run?

Well, we think about that a lot, as you would expect, Julien. And I think in general, we would say that we expect a longer, slower recovery in the sales part of our business than we've seen historically. And we're early into that recovery. We expect it to run for some time. Obviously, when -- I mean, September when interest rates ticked down, sales activity picked up.

But we do have strong pipelines. People talk about pent-up demand. There's pent-up demand on both sides. There's pent-up demand from buyers. You mentioned the capital stores that the real estate investors have. And there's a lot of owners of assets that are ready to sell the assets. And the gap between buy/sell expectations has closed pretty significantly.

So we expect a nice, strong, steady recovery investment sales over the next couple of years. Obviously, if something happens in the micro -- macro economy that would interrupt that in one direction or another, it could change our expectations. But that's where we are right now.

Okay. And Emma, maybe following on from Tony's question, turning to the fourth quarter, as you mentioned, there's tougher year-over-year comps. But I guess, how would you describe the deal activity so far in the fourth quarter? How do pipelines compared to this time last year?

And then also if I could take another one, on the Advisory segment. It looked like maybe the incremental margins this quarter were a little bit lower. Is there something happening maybe on the hiring side?

So to take your first question, pipelines are strong. We're continuing to see strong activity in the beginning of the fourth quarter through October, both on the leasing and sales side. I do want to say that we provided a guidance range up to $6.35, and that largely incorporates the flow-through from outperformance in the third quarter. But if everything goes as we're expecting, if transaction activity continues as we're seeing right now and as we expect, and at these development sites that we have a high confidence we'll monetize this year to turn out, we will be at the high end of our EPS range.

On the margin side within Advisory, our incrementals were a little over 25% this quarter, which is lower than what we've seen earlier in the year. And the major impact there was an increase in incentive comp because of the deferments of the overall segment and business.

Your next question is coming from Ronald Kamdem from Morgan Stanley.

Just sticking with the Advisory segment a little bit, clearly, where the outperformance came this quarter. Maybe can you talk a little bit just about sort of the talent in terms of people? Does this -- are you appropriately staffed? Do you want to hire more people? What's competition like? Just sort of color on how you're thinking about this gradual recovery and your positioning.

Well, again, something we focus on all the time. And I would say we are appropriately staffed, but we're also adding where we find the right talent. We've got capacity in our leasing brokerage team to do more, and we've got considerable capacity in both our sales team and our mortgage origination teams.

So we have had a really good run with talent across our brokerage business, but in particular, in the leasing business. And when you look at -- and we've taken considerable market share over the last couple of years and improved our leasing product.

And what's gone on there is we've, around the world, made significant upgrades to our local leasing leadership teams. We have a managed brokerage platform that we use that's supported by a technology tool that helps us identify where in the market -- we have holes in our coverage, and we aggressively try to close those holes. We also use it to manage our interface with our clients.

The tools we support our leasing business with, the technology tools, the data we support our leasing business with, the research we support our leasing business with, the advisory tools like workplace design, labor analytics, have allowed us to move ahead in that business, not only in landing new business, but in landing new talent and retaining the talent we have.

So we're in a really good place with our brokerage talent. We've made some significant recruits on the investment sales, and especially on the mortgage origination side of the business also. So we're well-staffed. We have plenty of capacity in that staff, but we're also looking to add talent. Because as we've already talked about on this call and in our prepared remarks, the market is strong and our pipelines are strong and we are expecting growth.

Helpful. My second -- my follow-up, I guess, would be, just going back to the Project Management business. I think we noticed you didn't break out Turner & Townsend versus the legacy. Just any comments there? And then if you could just update us on the thoughts on the margin opportunity sort of near and long term, that would be helpful.

Well, the reason not to break it out is because we're now well into that integration and the operating model that supports that business has been pretty much integrated around the world. And not surprisingly, the operating model we're using is the Turner & Townsend model, which we think is the industry's best, a big part of the reason why we made that deal in the first place.

Now we're starting to move on to integrating the financial platform around the world, integrating human resources platform, as we call, the people platform around the world, et cetera, technology platform, that's an area where we'll use the CBRE platform. And so we expect that part of the integration to yield some cost synergies for us next year.

I will say, and I've personally been involved in the interface with our clients in a number of areas, the market's recognition of those 2 businesses coming together and the new capability we have is starting to become pretty noticeable, and it's showing up in our new business wins. And an area where it's particularly showing up in is clients we already had that gave us a certain type of project, that are now giving us bigger, more complex projects and giving us cost consultancy work because of this combined capability. But all of that leads us to now look at that business as one integrated business going forward.

Our next question is coming from Stephen Sheldon from William Blair.

Just starting on data center monetization. It sounds like you're seeing strength in that class across a lot of different service lines. So just as we think about the next 2 to 3 years, where do you see the biggest avenues for CBRE to grow supporting data centers? And should investors be expecting monetization around data centers to continue becoming a bigger part of the overall business mix versus the 10% of EBITDA that you called out this quarter?

Well, Stephen, we expect data centers to be around 10% of our earnings this year, and more next year. And it's really important to know what's going on. There is this big bump-up in activity right now, and we're enjoying the benefit of that. I'm sure everybody that's in the real estate business or the data center services business that reports earnings is going to comment on that very favorably.

But in addition to enjoying the benefit of the current pop in activity, we are building businesses that we believe will be sustainable as the cycle with data centers unfold. And inevitably, it's going to be a big build cycle over the next 5 years, maybe longer. And then beyond that, it's going to be a big operate cycle.

We don't, except in an indirect way through our investment management business, we don't invest in a big way in the ownership of data centers. We do have significant land investments within Trammell Crow Company. And Trammell Crow Company's real strength, and has been for years, is they're phenomenal at identifying, acquiring, entitling and improving land sides. And they've turned their energies in a significant way to data center land sites, and we expect to see significant monetizations that will be at the front end of that cycle, the build part of that cycle.

Turner & Townsend does a lot of Project Management work, cost consultancy for data centers. That will extend on for years. And as data centers then go into a redevelopment phase, upgrade phase, et cetera, that project and program and cost consultancy work will continue on. So that's a big, enduring opportunity.

We have a very large data center brokerage business in our advisory business. And we finance them, we sell them, we lease them. We've coordinated our -- we've put the Chief Operating Officer of our Advisory business over that effort to coordinate it, and we see that as an enduring business.

And then within our BOE segment, we have 2 lines of business that we're bringing together. One is the management of data centers. And we've talked about that, we manage something like 800 data centers on an ongoing basis. And then the small project improvement work in data centers inside the white space with the business we acquired called Direct Line. We're merging those 2 and forming a digital infrastructure services line of business that will carry separately within BOE. And that business is particularly well suited to perform well, not only now as data centers are being built, but we think that the actual operation of data centers and refit of data centers as that life cycle evolves will really play to that business.

So we're enjoying the benefit of the big pop that's going on in the short run, but we're building businesses, similar to the strategy we've had with our other resilient businesses, that we think will endure well into the future in data centers.

Got it. Yes, very helpful context. It seems like there's a lot to be excited about there. Maybe as a follow-up, just as you think about CBRE's relationship with occupiers, I think you've been talking more about how you can create better touch points with them and hopefully drive more wallet share gains over time. So any update on what you're doing there and the time line, if some of these things work, the time line to potentially see wallet share gains? Would large occupier prior clients pick up even more?

Our relationship with occupiers is evolving pretty rapidly right now, and our view as to how we serve the big occupiers has evolved. A big part of that is driven by our acquisition of Turner & Townsend and our acquisition of Industrious. And when you look at what we provide to big occupiers, we provide things for them across all 4 segments. So obviously, in BOE, we provide facilities management. And obviously, in the Turner & Townsend or the Project Management segment, we provide program management, project management, cost consultancy.

So you look at where those 2 businesses are today where they were historically, we went out and spent the better part of $1 billion to buy an experience business, Industrious. We now have that as part of our facilities management as part of that -- part of our occupier offering. And it doesn't exist elsewhere in our segment, and it is proving to be a real advantage as we go to market in that business.

We now have a Project Management capability and a cost consultancy capability to do a different kind of project work than we or others in our sector were able to do previously. And that is appealing to our clients.

In our brokerage business, we've talked already today about the gains we've made in leasing. Leasing is a huge business for us. Leasing is a very, very important part of what we do for occupiers. That business has pulled away from where it's been historically.

And then in our development business, in Trammell Crow Company, we have something that's important to the occupiers that doesn't exist in a significant way elsewhere in the segment, and that is our build-to-suit capability. And we do a lot of build-to-suit work for big occupiers around the world, particularly here in the U.S., but some around the world.

And what we've decided to do in that business is to go at our clients and say, "We can offer any 1 of these 4 things to you in a way that we think is unique and advantages you." And if you want to buy them that way, we'll sell them to you that way. And if you enjoy the benefits of what we sell you because it's better than you can get elsewhere, we know you're going to buy the other stuff. And we've learned a lot of these clients like to buy that way. They want to just buy facilities management or project management or build-to-suit services.

But the cross-sell that comes is, when they're satisfied with each of those, they're more likely to buy the others. And then in certain cases, we will have clients, and we've had some recent experience that's been very compelling, that will say, "You know what, we want to buy some of this on a bundled basis." And that's how we're thinking about that today.

Next question is coming from Alex Kramm from UBS.

Yes. Not sure if this is on the same topic, but maybe can you just talk about your BOE outlook and pipelines a little bit more. I know earlier this year with all the tariffs, et cetera, I think there was maybe some uncertainty and maybe things took a little bit longer. So just wondering how pipelines have trended and if you think things have generally normalized on the BOE side.

Yes, absolutely. I'd say normalized and improved even beyond that. So within our BOE segment, especially within enterprise, our pipelines are very strong, and we're expecting to have a volume of sales that is at a significantly elevated level.

As you mentioned, Alex, there is a decent lead time between a sale and when that shows up in our revenue when that contract is converted because these are very large contracts. And so that elevated volume of sales should start to show up in our BOE revenue towards the second half of next year.

All right. And then a very quick follow-up. On the data center divestment, I don't think you've sized that. Can you just -- the one that potentially is going to slip into 2026, what -- how should we think about the EPS impact, if it comes through or not?

So think about the range of outcomes for EPS that -- we've cited the $6.25 to $6.35. The bottom and top end of that range is really dependent on the development monetization.

Your next question is coming from Steve Sakwa from Evercore ISI.

Yes. And I just want to maybe go back on the buyback. I just am trying to understand if maybe there were some deal activity that was maybe being kicked around internally that, I guess, precluded you from buying back stock in the third quarter or that was more of an active decision kind of not to buy back stock in the third quarter?

I will say it was not an active decision not to buy back stock. We feel, as we've always said, we feel that our share price is undervalued. We continue to believe that it's undervalued. And so when we have cash flow available, or in our projections, it's available, we will be buying back shares. But as you know, it's difficult to talk about our M&A pipeline or our activity there until we get something done.

No. Understood. And then, Bob, I guess, a question that we get a lot is around the facilities management business, and I guess, maybe the ultimate TAM of that business, and I realize, depending on how you size it, it's a couple of billion dollar business. But how do you think about the ultimate TAM of facilities management or how do you think about your market share in that business globally?

Well, Steve, we've forever tried to measure that TAM, and you can get some pretty crazy large numbers. What I will say is we've consistently expanded our TAM. So the work we do with data centers definitively has expanded the TAM. We operate a lot of data centers and we're positioned to operate more and that's a growing asset class.

The J&J acquisition, which moved us into government work in a bigger way in the hospitals expanded our TAM. And of course, that dimension is very, very large potentially. The Direct Line acquisition, where we do work inside the white space and data centers, expanded our TAM. So right on down the line, the things we've done in that business have expanded our TAM. And each one of these, depending on how you measure it, could have a huge impact. That's one of the things that has made us increasingly optimistic about our ability to grow CBRE is, A, we've expanded our TAM in a way that we think is pretty hard for others to do; and B, we've grown into that space as we've expanded it.

So I would tell you that we've done all kinds of work with our strategy group in-house. We've done a bunch of work with very, very top strategy people outside. And there's not a single view of that that would suggest we're anywhere near bumping up against our total addressable market. And we believe we can continue to expand that market.

Your next question is coming from Seth Bergey from Citi.

I guess my first one is back on the data center development side. So do those have access to power, or is that kind of a constraint there?

Well, that is without a doubt the constraint, and it's become more of a constraint. It's a constraint for anybody that's doing land work in data centers. It's a constraint for the co-locators. It's a constraint for the hyperscalers as they try to expand.

And what we do is we put ourselves in a position by acquiring land or securing control over land, getting entitlements to that land, making certain improvements to that land and putting that land in a position where the ultimate users of the land, who are often hyperscalers, are well positioned to work with the utility authorities to gain power. And that's really how our strategy in that part of the business works. And it tends to work well. But it's very competitive to get power.

And then I guess my second one is just back to the leasing. Is the -- specifically for office, is that -- are you seeing broad-based kind of activity there? Or is that concentrated in like more gateway cities or different classes of office there? Or any color you can add on the pipelines you're seeing there would be helpful.

Well, it is broad-based, but it hasn't been the same every quarter. So last quarter, we talked about secondary and tertiary markets being relatively strong compared to the gateway markets. We were a little surprised by that.

And I got a question or we got a question at the beginning call about what we were surprised by. But I think what we were surprised by in the third quarter was the resurgence on a relative basis of the gateway markets. They were really strong. New York, in particular; San Francisco, in particular. But if you look over the course of the last 12 months and you look at our pipelines, I think our expectation -- it's fair to say our expectation is you're going to see broad-based growth in office building leasing.

And we don't believe we're borrowing from the future. What we believe is -- there's a lot of different ways to look at it. People still talk about return to the office. We don't really talk about it that way. I think what I would say is it's more of a return to the mean, number one. In other words, COVID is so far in the rearview mirror, all the arguments pro and con on office space have kind of disappeared and people are thinking about it more like they thought about it before.

But secondly, and this is true of real estate in general, which is another reason why we're so excited about our opportunity, real estate facilities have become much more critical to companies than they used to be. And I spend so much time with occupiers, they're all talking about the importance of their real estate to their cultures, to their -- the way their people work together, to their productivity. That is a very big theme out there today.

If you go out and look at our warehouse business, our distribution center business, it is so much more strategic to our clients than it ever was historically. I started leasing warehouses, they were just big shell buildings, not nearly as big as they are now, but they are just big shell buildings where people stored stuff. And you go in to those buildings now, they've got thousands of robots in them and they've got miles and miles of conveyor systems. The buildings are very technical, and they're core to what those companies do to serve their clients, they're strategic.

So real estate has become a much more -- obviously, data centers, it's not even worth talking about, that's become so obvious. Real estate has become a much more strategic asset class than it used to be. And that's true of office buildings, just like it is other aspects of commercial real estate.

Your next question is coming from Jade Rahmani from KBW.

To follow up on office, can you talk about the strength in the sector in the U.S. and if you're seeing the recovery being driven by Class A and Class A-plus premier workspaces plus new development that has robust leasing? Or if you believe it's becoming more widespread and that below Class A, Class B such assets, in secondary submarkets, is the next leg of growth that you see coming?

Yes. Well, what's going on, Jade, is kind of what we thought might go on a year ago. So when the very best main and main buildings get filled up and there's still demand for really high-quality space, then you see people starting to convert buildings that are of lesser quality to a higher quality. That's really happening here in Manhattan. The demand has clearly moved into secondary and tertiary markets where there are a lot of good buildings available, or at least were available, they're quickly going.

And you are starting to see new development now. And I'll give you a perfect example, from our own business. So for years and years and years, we've had one of the very best office site in Uptown Dallas, and you can develop between 0.5 million and 0.75 million square feet of space on that site. And we've been sitting on that site. We own it on our balance sheet. We're not in a hurry to do anything with it. And we now have a couple of large users, high credit users, that are very interested in that site. Pretty good odds we'll go ahead and kick that site off and bring 500,000, 600,000 square feet of new prime Class A space into the market. And we're not the only ones doing that.

Three years ago, if we were having this conversation or 4 years ago, that wouldn't be part of the conversation. But it is now. And if you look here in New York, some of the prominent developers are either -- have either announced new things. We'll be in that and we're confident what we know enough about sites that they will be announcing. And again, that's going on in markets around the country. So it's spread. It's spreading from Class A buildings to lower class buildings that are being upgraded, starting to see new development, and it's a very real trend.

And then on the industrial side, it had been oversupplied and dealing with, not just tariff uncertainty, but negative absorptions due to that excess supply. It seems like the market has clearly turned a corner. Could you comment on what you think drove the growth in the quarter?

Well, big leases in the best buildings. There's a lot of interest in those. And then on the smaller leases, in the smaller buildings, there were a lot of renewals. Those tend to be shorter leases, older spaces, second-generation spaces. So you saw that coming from both ends of the market.

There has been a higher vacancy than usual the last couple of years. We know that. We think that the vacancy is going to start going down by midyear next year. And I think what's happening in part is these big sophisticated users, whose large spaces are critical to their business, have figured that out and are starting to take -- obviously, there's others that report their numbers in our sector that have done quite well in the last quarter and are expecting to do quite well going forward, and that's what you're seeing here. You're not only seeing that here in the United States, you're seeing it around the world.

If I could ask one follow-up, it would be on EBITDA margins. Are you expecting kind of steady-ish full year EBITDA margins going forward? Or do you believe that there's still areas of growth that -- areas of margin expansion beyond 2025?

So Jade, we look at our margins within our services segments. And as you know, the development margins are -- can be pretty lumpy. And so within Advisory, for the full year, I think we're very close to our peak margins, at least going back to 2019. And we think that that's a pretty healthy margin, and we expect that to be sustained.

Within BOE, we're going to deliver, as you know, good margin expansion this year. And as Bob noted, across facilities management, property management, we're going to see more synergies next year. And so you should expect that margin to continue to increase. And then Project Management as well as those cost synergies start to come in. And so you should expect to see some incremental margin expansion going into next year.

Thank you. We've reached the end our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thanks for joining us, everyone, and we'll talk to you next when we report year-end earnings.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.