UK Property Brokers Fear Bank-Style Jobs Cull

Source : The Business Times, August 7, 2008

Rumours that big players plan 5,000 redundancies as demand tanks, but some analysts dispute that figure

(LONDON) With much of the European real estate market on its knees, the painful death of job security is now haunting property brokers as well as investment bankers.

Tougher times ahead: An estate agent in London. Market professionals say property firms will have to adapt to more difficult market conditions and manage costs accordingly because it is unlikely that the capital markets will recover in 2009

High-flying real estate dealers are leaving their favourite tables at expensive London restaurants vacant, awaiting a purge that will have much in common with the one that has rocked Britain's banking sector this year.

Property booms fed and were fed by the global credit boom that ended abruptly last year when US mortgage defaults began to mount, and investment demand in the UK and US property markets has crumbled in the credit crunch that followed. Now other European markets are wilting fast and job losses may not be confined to those frontline bear markets.

'Property is a cyclical business and contraction will be inevitable as firms look to be more streamlined,' warned British Property Federation chief executive Liz Peace.

Rumours abound that some of the biggest employers in real estate are bracing for a phase of redundancies which could cost up to 5,000 property professionals their jobs across their European, Middle Eastern and African (EMEA) operations.

Not everyone agrees headcounts are under such strain.

'Markets like Eastern Europe, Russia, Ukraine, Turkey are still growing, so it would be ludicrous to downsize European businesses anywhere near that figure,' said Paul Bacon at property consultant Cushman & Wakefield, referring to the rumours of 5,000 job losses.

'We have absolutely no plans for wholesale redundancies in the UK,' said Mr Bacon, who is head of EMEA business.

Major emerging markets have so far escaped the worst of the credit crunch. However, the credit boom that preceded it fed foreign investors' appetite for property as well as other assets in emerging markets.

'There are a number of markets where (property) prices have risen very quickly,' said Robert Maciejko, managing director for Central and Eastern Europe at global management consultancy Oliver Wyman. 'The issue is when the Brits or the other foreign investors are no longer investing, or even looking to sell, and that's when prices can really go down.'

According to data from Cushman & Wakefield, European property trading volumes have slumped 63 per cent year-on-year to 25.6 billion euros (S$54.7 billion), leaving many brokers in Spain, Ireland, Germany and France fearing redundancy.

One market analyst, who did not wish to be named, said a flurry of corporate takeovers executed in the twilight of the property cycle had left titans like CB Richard Ellis (CBRE) and Jones Lang LaSalle 'thick around the middle' - with too many support staff playing piggy-back on fewer high fee-earning brokers.

'We have grown market share considerably in recent years, partly due to organic growth and partly through acquisitions,' said Alastair Hughes, head of EMEA at Jones Lang LaSalle (JLL). 'These acquisitions were either to expand our geographic coverage or to strengthen existing business areas. None were predicated on a continued capital markets boom.'

Figures posted last week showed sinking second-quarter profits at both firms but overall revenues in JLL's EMEA division were 20 per cent higher than the corresponding period in 2007 as the firm racked up lower- margin advisory business to offset an abrupt halt in building sales.

'Property services firms are all having to adapt to more difficult market conditions,' said Mr Hughes, who described the rumoured threat of 5,000 job cuts as excessive. 'The industry will have to manage costs accordingly because it is unlikely that the capital markets will recover in 2009, and likely that the leasing markets will continue to soften.'

London-listed global consultancy Savills told Reuters it had embarked on a cost-cutting programme that included some redundancies but it would not discuss details.

Mr Bacon said Cushman was still keen to make strategic appointments. 'Our European business has expanded rapidly in the last five years but the quid pro quo was we couldn't grow as fast in the UK. This gives us a chance to address that,' he said.

CBRE, the world's largest property consultancy, said it was 'naturally focused' on cost cuts that would provide 'meaningful bottom-line benefit' and that it had shed a modest number of jobs in business areas hardest hit by the market downswing.

Paul Soothill, head of property and facilities management recruitment at Joslin Rowe, said property firms hoped to redeploy staff to areas like outsourcing, which can help UK corporates to manage their real estate more cost-effectively.

Average UK commercial property values have tanked by almost a fifth since the collapse of Britain's white-hot commercial property market in June 2007.

In the same way Britain starts sniffling when the United States catches a cold, where the UK real estate market goes, many European property markets tend to follow.

'Many of the big firms have been here before,' said the British Property Federation's Ms Peace. They 'know what they need to do to weather the storm'. -- Reuters