Greetings and welcome to the CBRE's Q4 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Burke, Senior Vice President of Investor Relations and Strategic Finance at CBRE. Thank you. You may begin.
Good morning, everyone, and welcome to CBRE's fourth quarter 2022 earnings conference call. Earlier today, we posted a presentation deck on our website that you can use to follow along with our prepared remarks in an Excel file that contains additional supplemental materials. Before we kick off today's call, I'll remind you that today's presentation contains forward-looking statements, including without limitation, the statements concerning our earnings outlook. Forward-looking statements are predictions, projections, or other statements about future events. These statements involve risks and uncertainties that may cause actual results and trends to differ materially from those projected. For a full discussion of the risks and other factors that may impact these forward-looking statements, please refer to this morning's earnings release in our SEC filings.
We have 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. I'm joined on today's call by Bob Sulentic, our President and CEO, and Emma Giamartino, our Chief Financial Officer. Please turn to slide five as I turn the call over to Bob.
Thank you, Brad. Good morning, everyone. As you've seen, we reported Core EPS of $1.33 for the fourth quarter. While down significantly from a year ago, Core earnings were slightly above the estimate we provided at the end of the third quarter. This outcome was driven by several of the more cyclically resilient elements of our business, like outsourcing and others that are secularly favored, like project management and the logistics asset class. These businesses, which together comprise about 45% of our Core EBITA, grew revenue more than we expected, offset by a slightly larger than expected decline in transactional revenue. Full year Core EPS rose 7% to $5.69.
This is a solid growth rate considering the more than doubling of long-term interest rates, sharp equity market decline, and the credit crunch that constrained investment activity for most of the second half. Notably, we ended 2022 with virtually no leverage, despite making share repurchases, infill M&A, and strategic investments that together totaled approximately $2.1 billion during the year. Looking at the macro environment, cap rates are up 100-150 basis points, perhaps a bit more for office, and we expect them to expand another 25 basis points or so before peaking, likely in Q2. While capital largely remains on the sidelines, we are beginning to see signs of asset repricing helped along by the narrowing of spreads.
Among property types, multi-family and industrial fundamentals should remain strong, albeit with occupancy declining slightly from peak levels and rent growth continuing at a more modest clip than the double-digit pace set in 2022. Office will remain the most challenged property type as we do not expect occupancy to come close to pre-pandemic levels in the short term. Globally, we expect significant sales and leasing weakness in the first half before adverse conditions begin to ease later in 2023. Relative to 2022, we expect both Europe and Asia Pacific to outperform the Americas this year. For 2023, we expect Core EPS to decline by low to mid-double digits, but still to be the third highest in CBRE's history.
As we've pointed out before, this would be a meaningfully better performance than in prior recessions, such as the Global Financial Crisis, when Core EPS decreased more than 60%. In all, 2023 will be a transition year. We feel good about where we'll be when we get to the other side of the downturn. While the macro environment can certainly change, we expect Core EPS to grow strongly in 2024, exceeding the 2022 peak and reaching a record level in just the first year after a recession. With that, I'll hand the call to Emma, who will discuss our quarter and our outlook in greater detail. Emma.
Thank you, Bob. Before turning to our 2023 outlook, I'll first discuss fourth quarter results for each of our segments, starting with Advisory on slide 6. Advisory net revenue and SOP declined by 21% and 33% respectively, driven by a slightly more pronounced decline in our higher margin transactional businesses than originally expected, which was partially offset by healthy growth from our property management business. For Capital Markets, sales and mortgage origination combined, revenue declined by 46% in line with our expectations. Capital Markets revenue growth was robust
Seattle. In total, global office leasing revenue was 14% below prior year after increasing by nearly 50% year to date through the third quarter, albeit against relatively easy prior year comparisons. Outside the U.S., leasing revenue was down 6%, wholly due to FX translation headwinds. In local currency, lease revenue Including Turner & Townsend increased by 12%, with facilities management up 9% and project management up 21%. GWS SOP increased by 30% with margin improvement driven partly by business mix. Turner & Townsend continued to grow impressively. In the first full year since acquiring a 60% interest, Turner & Townsend has exceeded our original underwriting. 2022 represented our highest ever year for client contracts coming up for renewal, totaling over $4 billion. GWS renewed 94% of this total, often with increased scope of our client relationships.
Looking forward, we expect 2023 renewals to be just over half the level of 2022. The GWS revenue pipeline ended the year up 11% over year-end 2021, reflecting continued demand from first generation outsourcing clients, as well as expansion mandates from our existing client base. Turning to slide 8, REI SOP declined to just $17 million in Q4 against an unusually strong prior year comparison. Our global development business posted a $6 million SOP loss, primarily due to a $43 million loss in our Telford, UK, development business. Lower SOP in US development reflects the timing of asset dispositions, which were heavily weighted to this year's first half, consistent with our expectations going into the year.
Following an in-depth review of the Telford business, we wrote down a handful of projects where we expect costs to exceed our initial underwriting, and we also increased our fire safety reserve. We now believe Telford's financial performance will improve going forward. Investment Management AUM grew $5 billion sequentially, driven by net capital inflows of $4 billion and positive FX movements, which offset $5 billion of mark-to-market declines. Investment Management SOP declined due in part to co-investment losses versus gain in the prior year quarter. Excluding co-investment gains and losses, Investment Management SOP was nearly flat with the prior year quarter. Turning to slide 9, our 2023 outlook is underpinned by the following macroeconomic assumptions. The U.S. will experience a short, moderate recession in 2023. Unemployment will increase to near 5%.
Inflation will end the year above the Fed's 2% target but clearly trending down. 10-year U.S. Treasury yields will end the year under 3.5%. Should the economic outlook change from this base case, our business outlook would also change. In our advisory segment, we expect a mid-single-digit revenue decline. This will be driven by growth in more resilient lines of business, offset by a mid to high single-digit decline in leasing and mid-teens decline in property sales. We expect SOP to decline by high single digit to low double digits as cost savings initiatives partially offset both relatively better growth in lower margin businesses and general cost inflation. In our property sales business, we expect the number of transactions will be subdued in the first half of the year and accelerate in the back half of the year.
We expect our leasing business to continue to benefit from an elevated level of lease expirations. While the return to office has been slow in the U.S., EMEA and APAC have seen occupancy return at a faster pace. We expect these regions to be less pressured than the Americas in 2023. For property management and valuations, we expect accelerating revenue growth in both lines of business due to recent investments in sales support and tech and acquisitions, as well as less FX pressure. Within GWS, we expect low double-digit net revenue and SOP growth, with margins increasing slightly as cost savings more than offset inflation and incremental investments to support growth. Our facilities management business is benefiting from new wins and expansions.
All major client sectors are expected to grow, notably in healthcare and technology, where the changing use of real estate is driving increased demand for outsourcing services that we believe CBRE is best positioned to deliver. We also expect continued momentum in our project management businesses, including double-digit top and bottom-line growth from our Turner & Townsend business. Within our REI segment, we expect SOP in the mid-$300 million range, with roughly equal contributions from development and investment management. Within our TCC development business, we expect SOP of just over 1% of our nearly $17 billion in-process portfolio, and we've closed over $100 million of expected SOP in January alone. Our TCC business has developed a portfolio of assets that we believe is extremely well positioned for the current market environment with approximately 75% of our expected SOP in 2023 from industrial deals.
While our Telford business remains challenged, we do expect improvement versus 2022 as significant cost inflation is now incorporated into projected results, adding approximately $20 million to SOP versus 2022. Beyond our 3 main business segments, we also expect roughly flat corporate overhead and our full year Core tax rate to rise to 2021 levels versus a lower 2022 rate. Consistent with our approach last year, the 2023 outlook assumes only a modest use of capital. That said, we continue to have a strong appetite for M&A and share repurchases, both of which could support incremental earnings growth above our current outlook, and we do not anticipate ending 2023 in a net cash position. In summary, we expect Core EBITDA to decline by high single digits versus 2022, with over half attributable to the decline in development SOP.
We expect Core EPS to decline by low to mid double digits versus 2022. This is more than the Core EBITDA decline because of higher depreciation and amortization and a higher tax rate than in 2022, when we had a number of one-time benefits that will not recur. We expect nearly two-thirds of full year Core EPS in the back half of the year, a more pronounced seasonality to earnings than we've historically experienced. The $400 million cost containment program we announced last quarter is embedded in our guidance. Fourth quarter results saw a nearly $80 million cost benefit, and we expect a cost benefit in 2023 of approximately $300 million with the remainder in 2024. The entirety of the cost containment program will be reflected in our run rate by the end of this year.
We expect that our cost containment efforts will allow us to counteract the general inflation pressures and enable us to make continued investments to support future growth. Last year, we refreshed our 2025 financial guidance, which implied CBRE would achieve Core EPS between $8 and $9 by year-end 2025, absent meaningful capital allocation. Due to the real estate transaction downturn, our target is now likely to slip by 12 to 18 months. As I noted previously, our 2025 targets were established on the basis that there would not be a recession following the COVID recovery. The drivers of how we achieve this Core EPS growth are largely unchanged. At the midpoint of that Core EPS target, $8.50, CBRE will have achieved double-digit compound Core EPS growth since 2019, despite needing to manage through 2 significant downturns.
It also represents a high teens CAGR from our 2023 projections. In closing, we remain excited about CBRE's prospects for long-term growth, the strength of our brands, and our ability to outperform during periods of market weakness. With that, operator, we'll open the line for questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from the line of Anthony Paolone with JPMorgan. Please go ahead.
Thank you, and good morning. My first question relates to GWS and the outsourcing business, and I was wondering if you can maybe, you know, take us inside that business a bit more and help us understand how in an environment where office usage is down and footprints are shrinking that that business can continue to grow. Just would like to better understand, you know, what additional services clients are taking on to, you know, maybe offset smaller footprints.
Yeah, Tony, first of all, even if you have some shrinkage within an account, there are opportunities for revenue. Secondly, there's the addition of new accounts, which has been very significant for us for the past year, actually record levels, and we're expecting that going forward, where people are giving us more property to manage, because they want to save costs. The combination of those factors have allowed us to grow that business consistently over the years during downturns, and we expect it's going to be a double-digit grower in 2023 for the same reasons.
Okay. Then, just my second question, you know, relates to just perhaps any color you can give us, that you're seeing on the ground today in terms of, you know, either green shoots or, you know, regions or property types where you're starting to see activity levels, you know, rebound. I think you alluded to, you know, some properties starting to come to market or folks maybe testing the market a bit, so just wondering if you could elaborate on that some.
Yeah. You're asking with regard to property sales?
In leasing, just the more transactional stuff.
Yeah. Okay. Well, where you're seeing activity in sales is for good assets, even in some cases, office assets, if they're Class A buildings, fully leased. For sure, industrial and multi-family, if you went back to last year, even the end of last year, you'd get a couple bidders that would test the waters. Now, for some of the better quality assets, we're getting several bidders and they're bidding aggressively. There's anecdotes on multifamily, there's anecdotes on industrial in particular, where we're seeing that happen. That's quite a bit different than it was last year. There's a lot of capital that's been on the sidelines wanting to acquire assets. There's a lot of asset owners that have wanted to sell assets.
We're starting to see spreads come in a little bit now, and the buyers get a little more aggressive in various cases. That's what you're seeing there. With leasing, we continue to see very strong fundamentals in industrial. There's low vacancy. There are a lot of companies out there that still need space for a variety of reasons, we are seeing momentum there. Then you have, as we said before, you have a considerable amount of renewal activity around office buildings and retail in particular.
Okay. Thank you.
Thank you. Our next question is from the line of Chandni Luthra with Goldman Sachs. Please go ahead.
Hi, good morning. Thank you for taking my question. Bob, you talked about 2024 EPS recovering to 2022 levels at least. What gives you confidence, you know, on such a recovery, just given the macro environment and the uncertain, you know, outlooks that we all have at the moment for the rest of the year? I mean, are you seeing any signs on the ground of improvement? anything that, you know, gives you that confidence to go out and talk about 2024 right now?
Yeah. Chandni, I'll comment, and then I'll give it to Emma. First of all, we actually expect 2024 to not go back to 2022 levels, but actually exceed 2022. A big part of that is the large portion of our business that's either secularly benefited or cyclically advantaged. All of that outsourcing business, which in aggregate is now quite large. Anything we're doing for the industrial or multifamily asset classes, we expect to be strong by then. Project management will be strong. We expect the debt business to come back. All of those circumstance are driving it. Now, the thing that would cause it to not happen is if we were wrong about the recession, if the recession was worse or lasted longer or started later.
Those parts of our business are what we expect to drive that outcome. Emma, you may want to add to that.
Yeah. To put a little context around what those numbers look like, Chandni. If you think about our resilient lines of businesses, we've talked about that being, you know, 40% contributor to our SOP. In 2022, it's 45% of our SOP. In 2023, that's just gonna be closer to 50%-55% of our SOP. Those are our lines of business that we expect to continue to grow through a recession. That's becoming a larger and larger part of our business. Our transactional business lines, we expect them to rebound starting a little bit at the end of 2023 into 2024.
What's important to know about that is that the growth that's embedded in that outlook to get back to above 2022 levels means that our advisory lines of business, our transactional lines of business, would need to grow less than they did in 2021. Putting that all together, it's very achievable. Then on top of that, what's not embedded in the 2024 guidance or our outlook is any sort of material capital allocation or M&A, which would put us far above 2022 levels.
That's very helpful, and that's exactly what I wanted to talk about for my next question, but, you know, more focused on 2023. In terms of, you know, buybacks and just general capital allocation, you talked about using, you talked about only a modest use of capital in 2023, and that means that buyback is not part of that EPS guide that you've given today. How would you rank buybacks and M&A in 2023 in terms of priority? Do you think buybacks could look much like 2022 in 2023? You know, switching gears to M&A a little bit, if M&A were to be part of the calculus, could you give us some parameters on what that could potentially look like?
You know, how much leverage would you be willing to tap into, and what would be the potential business lines that you would like to explore?
Sure. When we look at allocating capital, we look at buybacks and M&A in line. Just are weighing which is a better use of our capital and which can drive a greater long-term return for us. In 2022, you saw that there wasn't a significant amount of M&A opportunities. We obviously were building our pipeline and continue to build our pipeline and are seeing things, conversations are starting to build and accelerate in a way that they did not in 2022. Because there wasn't a tremendous amount of M&A activity available, we repurchased almost $2 billion worth of shares, and our share price was also at an attractive valuation.
We will continue to look at that. We are constantly evaluating whether we're gonna buy back or we're gonna do a more larger transformational acquisition, we will continue to do that throughout this year, we will update you as that progresses. In our outlook, we didn't include what that would look like because we don't know how it's going to unfold going forward. In terms of M&A, we are willing to go up to 2x leverage for transformational deals. If it was highly transformational, we'd go slightly above that. That's the range that we're looking at. With capital allocation overall, we want to, at the very least, end the year net leverage neutral, we're willing to go above that for buybacks as well.
Thank you.
Thank you. Our next question is from the line of Steve Sakwa with Evercore ISI. Please go ahead.
Yeah, thanks. Good morning. Bob, just circling back on the sales activity. I'm just curious, in your mind, is the potential pickup in activity more a function of the overall level of interest rates or more of a stabilization of rates and spreads where people can actually know where their cost of capital is before they, you know, start to underwrite transactions? I'm just trying to figure out which one's the bigger lever, the actual rate or the stabilization of rates?
I think probably right now it's the stabilization of rates. The other thing, Steve, that I think is going on is, people are recognizing that with all the concerns about the economy, and obviously there are considerable concerns, the fundamentals in industrial and multifamily are really strong. Really low vacancy rates. Every reason in the world to believe that rental rates will go up at least somewhat. That's in what's gonna be a tough year, and then longer term it's gonna be better. Then you have this just very human thing about, sellers being ready to sell and buyers being ready to buy with capital and sitting on the sidelines for a long time.
As soon as two or three circumstances start to line up favorably, fundamentals, stabilization of rents or rates coming down a little bit, some talk in the market that maybe the recession won't be as bad as we thought. When you get that confluence of circumstances, things start to shake loose a little bit. As soon as one or two buyers go into the market, others start to get into the market because they're afraid they'll be left behind.
Okay, thanks. Secondly, I was just hoping maybe Emma, could you provide a little more detail on kind of what happened to Telford? I'm not. It sounded like just maybe cost got out of control, and I just thought maybe you could expand on that a little bit just to make sure we understand sort of the problems and I guess what's been rectified moving forward.
Yeah, absolutely. I do want to step back, and there's two major things going on that are different. The first is the U.K. put in a Fire Safety Act, which is still under review, related to a very terrible fire that happened in 2017. Through that act, they're requiring all home builders who've built a building over a certain size over the past 30 years to bring those buildings up to the current fire safety standard. As a result, we and all other home builders in the U.K. are having to go through this process of determining what the cost will be across all of our buildings that we've built, over the next, you know, 5, 10 years, as long as it takes us to remediate those issues.
That's where you see the non-cash, about a $140 million reserve that we took in Q4. What's important to know about that is that is our best estimate of what we think the cost will be to remediate those. The actual cash outflow to remediate those issues across those buildings will be over a very long period of time. We view that as an isolated anomalistic issue that's occurring across all home builders in the UK. The second piece is how the operations of our business are being impacted, and that's primarily related to the external environment, record cost inflation. We had a number of COVID slowdowns that we've talked about over the past number of years within Telford specifically. What we did in Q4 is we evaluated all of our projects.
You saw that we impaired a number of assets, we took a $43 million loss in Q4. For the full year, it was just shy of $50 million. We believe that that's contained. That's a very good estimate of the value of those assets going forward and that we're at an inflection point going forward. We expect under new leadership and with the tailwinds behind UK build-to-rent, that that business will continue to grow going forward.
Okay, thanks. I just wonder, are you seeing any green shoots at all in the UK housing market from a demand perspective, or has that not yet started to pick up?
A little bit, Steve. I mean, you know, we still have the economic circumstance that we have with high interest rates, with concerns about the economy that's causing people to not spend the way they would spend normally. That's a little bit of downward pressure on the business, but we're encouraged by what we see in terms of the longer term trend.
Great. Thanks. That's it for me.
Thank you. Our next question is from the line of Michael Griffin with Citi. Please go ahead.
Great. Thanks. Maybe we can go back to leasing for a second. I'm just curious how your strategy around that might be changing, just given the longer-term implications that remote and hybrid work could have on performance and impact in the space. I think, Bob, you've talked about, you know, expanding in industrial, so, you know, maybe just how thoughts around that changed. If you can remind us just what percentage of that of the leasing revenue comes from the office sector, that'd be helpful.
Emma, Do you have that number, the % of our leasing that comes from office?
It is about a little over 50%, and that's come down. If you compare that to 2019, for example, it was closer to 70%, so that has steadily come down.
Yeah. Michael, what I'd say is, our current assumption is that this downward pressure that we've seen on office leasing is gonna sustain for the time being. We haven't seen much change over the last few months in the return to office. We've built a plan for the next several years that assumes that that is gonna be the case. We assume that there's gonna be a move over time from lesser quality to better quality assets, higher rates, higher rental rates, which will be a positive impact on the business.
Definitely going forward, we expect more of our income stream in the leasing business to come from industrial relative to office than it has other than in the last year than it has in the longer term past, and we don't see that changing. The comments that Emma made about our plan for the next several years, our growth plan, fully incorporate that view.
Thanks. That's helpful. Just one on geographic performance. It seems like your commentary and expectations around EMEA and APAC are maybe a bit incrementally more positive relative to the Americas. I'm just curious if there's anything driving those underlying assumptions. Is it thoughts about, you know, economic growth or potential, you know, shallower recession there? Anything you can expand on on performance of those other, geographic segments, that'd be helpful.
First of all, we're now not expecting a recession in Europe, and we expect Europe to trend better than the U.S. in terms of return to the office. You go to Asia, and we expect Asia to be almost like it was historically as it relates to return to the office. We have very strong businesses, particularly in Korea, Japan, and China, relative to what we've had historically and relative to our competition. We have a very strong business in Japan, and we expect that business. It's become quite large for us, and we expect it to continue to grow. You have the economic backdrop, that's positive, relatively speaking, and you have the circumstance related to return to the office that's positive, relatively speaking, as you move from the U.S. to Europe to Asia.
You have just the very strong, relative business position that we have, particularly in Asia. Our businesses in Europe and the UK have gotten much stronger over the past few years on a relative basis. You see all those things coming through.
Great. That's it for me. Thanks for the time.
Thank you. Our next question is from the line of Jade Rahmani with KBW. Please go ahead.
Thank you very much. First question would be if the move in rates in the last couple of weeks has changed anything in terms of tone from major CBRE clients that you're hearing?
I don't think it's had a major impact, Jade. I mean, everybody is in the mindset that things are gonna be uncertain for a while. I don't think the view as to how the year's gonna play out has changed in any significant way. It certainly hasn't for us. Our view continues to be that we're gonna have a relatively mild recession, that we're gonna be out of it toward the end of the year, early next year, and that the capital markets are gonna come back in the back half of the year. We've already walked through what we're seeing anecdotally. We are definitively seeing positive anecdotal signs. We don't wanna over-rotate in terms of extrapolating too much from those anecdotal signs, but we think we'll see more of that in the back half of the year.
Thank you very much. When you look at the REI business overall, investment management and development, how much risk of further impairments do you anticipate, valuation impairments? You mentioned you expect cap rates, for example, to increase another 25 basis points. Could you put some parameters around perhaps how you're thinking about any risk there?
Jade, I'll walk through development first and then our investment management business. On the development side, any impairments, and we don't think there should be significantly more this year, are embedded in our guidance for that segment. As I noted in my remarks, we've already generated $100 million of SOP in January alone in our development business. We feel pretty confident in how the development business will pan out for this year. On the investment management side, what we're expecting is slightly positive net flows for this year of $5 billion, primarily from our listed mandates and then also from infrastructure and from our opportunistic funds to a lesser extent. We're also embedding a slight decrease in the market value of that AUM, which will offset some of those net inflows.
Thank you very much. Just regarding the guidance, how much does capital markets and leasing picking up in the back of half of the year drive the guidance? Is that really the main uncertainty in the guidance?
Yes. It's primarily in capital markets that we're really expecting to pick up mostly in Q4. Just to give Jay a little context around that, if our sales revenue comes in 5% lower than what we're expecting for the full year, that would have about a $0.02 of EPS impact. On the leasing side, we're not relying on a massive rebound in at the end of the year, but obviously, we're guiding towards less of a decline in leasing for the full year. For leasing, if there's a 5% decline in revenue versus what we're expecting right now, that would have more like a 3% change to EPS. I said two-
Okay.
On the sales side, I meant 2% change to EPS.
Okay, great. That's really helpful to have. On the office side, is the uncertainty there, which seems secular in nature, causing a rethink of, I guess, resource allocation in that space, in that property sector? Any rethink of how that outfit is organized?
Jade, we have multiple places that we play in the office sector. Starting with development. We develop it, we manage it, we sell it, we finance it. We've sized our business and our capital allocation strategy consistent with the assumptions that we've talked about here today about where that business is gonna be. The other place we play in the office sector is in our investment in Industrious. We think Industrious is gonna continue to grow at a healthy clip. It's a really good offering with a really strong leadership team. We are looking at that to be a likely bigger part of our business going forward. We expect leasing to be as we described. We don't expect to do much development, although we'll do some development on build-to-suits.
That'll continue to be part of our business, and that's great business, when you can do office build-to-suits with credit tenants, and that's what we would do. You know, over time, there'll be, you know, there's all kinds of uncertainty about what's gonna happen in the financing markets. Over time, there'll be a good amount of financing work in the office space as well.
Thank you very much.
Thank you. Our next question is from the line of Patrick O'Shaughnessy with Raymond James. Please go ahead.
Hey, good morning. I was wondering if you could speak to how you're thinking about free cash flow conversion as a percentage of your core net income in 2023.
Yeah. We expect it to be roughly in line with where we were in 2022, which was about 75% free cash flow conversion. What's important to know about that is because we are in a declining market, there is inconsistency of timing in terms of how we accrue our bonuses and how we pay them out in cash. If you normalize for that timing in 2023, our free cash flow conversion is closer to mid-80s, which is where we wanna be long term. We should expect coming into 2024 that we should be in a more normalized growth environment in that mid-80% free cash flow conversion range.
Got it. Thank you. What are you guys seeing right now in terms of talent retention, given kinda the slowdown in some of the brokerage areas? Are brokers more inclined to wanna move from place to place, or do you feel like you are able to retain all the key talent that you want to?
This is the kind of environment that generally plays well for CBRE. When times are uncertain, it's harder to generate commissions on either leases or sales or financing opportunities. Brokers tend to wanna go to a platform that's more likely to support them. Better information, bigger base of clients, better brand, a company that can be well-positioned to invest in a downturn because they have a strong balance sheet. You know, we're gonna generate a lot of cash in 2023 and 2024, and the brokers that pay attention, more sophisticated brokers know that, and they know we'll be able to continue to invest in our business. It helps us retain and it helps us recruit.
You know, Jack Durburg and the advisory team had a big year of recruiting last year, and we're expecting that to play out the same way this year.
Great. Thank you. Last one from me. Your in-process development projects decreased pretty substantially quarter-over-quarter. There was some commentary about, I think, just some reticence given the macro landscape. How are you looking at that as we move into 2023? Could it slide a little bit further in the near term, or would you expect that to start to rebuild?
Our in-process, just to frame what our in-process is, that is projects that have either started construction or we own the land, and it is expected to start construction within 12 months. The decline is primarily driven by projects in that latter category that we now believe are gonna be more than 12 months off, and so they've been moved into the pipeline category.
We'll continue to evaluate our in-process portfolio. If things move out of in-process at this point, again, it's not projects that won't be starting for more than 12 months. It will not impact 2023. It would have an impact 2024 and beyond.
Great. Thank you.
Thank you. As 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 joining us, and we look forward to talking to you again when we report on our first quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.