Earnings Call: Q4 2020

Feb 25, 2021

Welcome to the Cushman and Wakefield 4th Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Wakefield. Mr. Textur, you may begin the conference. Thank you, and welcome again to Cushman and Wakefield's 4th quarter 2020 earnings conference call. Earlier today, we issued a press release announcing our financial results for the period. This release, along with today's presentation, can be found on our Investor Relations website at ir. Cushmanwakefield.com. Please turn to the page labeled Forward Looking Statements. Today's presentation contains forward looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only, and actual results may differ materially. During today's call, we will refer to non GAAP financial measures as outlined by SEC guidelines. Reconciliations of GAAP to non GAAP financial measures and definitions of non GAAP financial measures are found within the financial tables of our earnings release and appendix of today's presentation. Also, please note that throughout the presentation, comparison and growth rates are to comparable periods of 2019 and are in local currency. For those of you following along with our presentation, we will begin on Page 5. And with that, I'd like to turn the call over to our Executive Chairman and CEO, Brett White. Brett? Thank you, Len, and thank you to everyone joining us today. Before I start with a brief review of our Q4 performance, including some color by region and service line, I wanted to let you know we have again invited Kevin Thorpe, our Chief Economist to join us today to provide some commentary on the recovery and more specifically office. Following Kevin's comments, Duncan will provide additional detail on our financial results for the quarter and the full year. First, I want to thank our team of Cushman and Wakefield professionals around the world. It goes without saying that 2020 was incredibly challenging and our employees' perseverance, creativity and service to our clients continue to go above and beyond. From those who have continued to support frontline operations through the pandemic to those delivering new and unprecedented solutions to our clients, I continue to be extremely proud of how our people have risen to the occasion. 2nd, as previously announced, our Chief Financial Officer, Duncan Palmer, will be retiring as of February 28. Duncan is a 1st class CFO. He's been a terrific partner to me and has added significant value to Cushman and Wakefield and I can't thank him enough for his work and friendship over the past 6 years. From the merger to numerous acquisitions to a very successful IPO, a global pandemic and everything in between, he has excelled and we wish Duncan all the best in his next chapter. Neil Johnston, our incoming Chief Financial Officer has an impressive pedigree as well and we are lucky to have him and look forward to him becoming CFO on February 28. Neil brings 30 years of finance and executive leadership experience having previously served as a CFO of Presidio and Cox Automotive. Neil is looking forward to meeting our investors and analysts in the coming months and we look forward to him joining us on our Q1 earnings call. And with that, let me turn to our results. Cushman and Wakefield reported 4th quarter consolidated fee revenue of $1,600,000,000 and adjusted EBITDA of $198,000,000 Overall, we were encouraged by the performance across our portfolio, including brokerage, where revenue exceeded expectations, particularly in Americas Capital Markets. Additionally, we delivered significant cost savings in the quarter from the decisive cost management actions taken earlier in the year, as well as our continued tight management of discretionary costs. For the full year, we reported fee revenue of $5,500,000,000 and adjusted EBITDA of $504,000,000 The impact of leasing and capital markets revenue declines of 34% 26%, respectively, were partially offset by the continuing stability of our PMFF service lines and over $300,000,000 of cost savings realized in year in 2020. For the year, our decremental margins were 24%, which was consistent with our guidance. Duncan will provide additional detail on our results for the quarter and full year. I would summarize our 4th quarter results as a balance of encouraging signals on business activity, especially in brokerage and validation of our commitment to operational excellence. We have executed very well in a very fluid and uncertain environment. With that, let me provide an overview of the market and what we saw across our service lines in the Q4. As expected, our PMFM service lines were a continuing source of stability this year. These contractual fee based revenue streams represent just over half of our total portfolio this year. Throughout the pandemic, our teams in these businesses have been directly supporting our clients by keeping essential buildings open, reconfiguring offices and retail outlets for social distancing, providing enhanced cleaning and specific facility services to ensure buildings are safe for tenants. In addition, our global occupier services business continue to win new assignments and renew existing client engagements for outsourcing services. As large occupiers continue to focus on operational efficiency through the down cycle, including recent wins or renewals with Citibank, Digital Realty and Sun Life Financial, just to name a few. On balance, we expect to continue to benefit from these trends as Cushman and Wakefield is one of the 3 large firms that provide comprehensive and scaled outsourcing solutions on a global basis. As mentioned, brokerage activity was ahead of what we expected for the quarter as leasing and capital markets were down 37% 14% respectively. More specifically, we saw capital markets in Americas decline just 3% versus the Q4 of 2019. Capital markets revenue was driven by a couple of factors. First, there remains a significant amount of capital that has been raised for commercial real estate investment sitting on the sidelines. Transaction velocity that had been lower at peak pricing has accelerated as sales prices and resulting buyer return requirements have narrowed over the year in a very low interest rate environment. Additionally, we believe that sellers were more active in anticipation of potential changes to tax rates with the new U. S. Administration. In leasing, we continue to see positive momentum for industrial warehouse and data center space, which was already performing well. As we have discussed, near term office fundamentals remain less clear as businesses continue to assess space requirements, as vaccinations become more abundant and the recovery advances. As you will hear from Kevin in a minute, we believe and as the data shows, the structural impacts of work from home trends will likely be offset by economic growth and office using job growth, which will lead to a full recovery in office over time. I regularly hear from other CEOs on the significance of the office to their organizations. Kevin will highlight some recent data that echoes these sentiments and more specifically points out the importance of the office for collaboration, team building and culture. Turning to the balance sheet, our capitalization remains strong with cash at more than $1,100,000,000 and liquidity totaling $2,100,000,000 Going forward, this strong financial position gives us tremendous flexibility and positions us to take advantage of growth opportunities, including infill M and A or larger opportunities should they arise. Going forward, the outlook for 2021 contemplates continuing uncertainty in the near term environment and in particular a challenging first half. We anticipate continued stability and growth in PMFM and some level of recovery in year over year brokerage revenue, particularly in the second half of the year. We remain very focused on operational excellence and plan to deliver additional permanent cost reductions in 2021, building on our strong execution in 2020. These permanent cost reductions will largely replace many of the temporary cost reductions we realized in 2020 and should in the long term enable return to 2019 margins even before the recovery in brokerage revenue is complete. As we said on the 3rd quarter call, we do expect an increase in operating costs in the first half of twenty twenty one, driven by a return to a more normal year of bonus compensation for our non FINER staff. Despite the ongoing near term challenges faced in the industry, we believe the consolidation of share to firms like Cushman and Wakefield that have the capability, resources and scale to solve the challenges our clients face each day will likely continue to increase. In summary, I continue to be very proud of our team and our execution throughout this past challenging year. Cushman and Wakefield's holistic expertise, global market intelligence and thought leadership have never been more important to our clients. With that, I'd like to turn the call to Kevin to provide a few comments on the recovery and more, specifically office. Kevin? Thank you, Brett, and hello, everyone. If you could please turn to Slide 6. From a market wide Depending on the property sector, the geography, the virus' trajectory, Depending on the property sector, the geography, the virus' trajectory, the policy response, we continue to observe a mix of strong performance in certain sectors, weak performance in others and varying degrees in between. Clearly, the situation remains fluid. The trajectory of the virus, the rollout of the vaccines, confidence, all of these are still moving targets. So admittedly, the outlook remains clouded and we're making predictions during a period of exceptional uncertainty. But we also learned a lot last year, which will help inform the future. As we look ahead, most economists are cautiously optimistic that the worst of the pandemic's impact on the economy is largely behind us. And by extension, the worst impact on the property market is also largely behind us. The path of the virus is central to the recovery, so let me start there. As you know, it was a difficult start to 2021. The spread of the virus was intensifying into the new year and new variants introduced new downside risks to the economic outlook. More recently, however, some encouraging trends are forming. We note that as of mid February, over 18% of the U. S. Adult population had received at least one dose of the vaccine. We also note that the 7 day moving average of vaccines being administered was trending up and that the number of vaccinations was easily outpacing the number of new confirmed daily infections. Most baseline forecasts assume the vaccines will be widely distributed by mid-twenty 21 in most advanced countries and in some emerging markets. In the U. S, it is currently assumed full herd immunity will be reached in or around September of this year and possibly as soon as this summer. Economic outlooks have been revised upwards. The general consensus now assumes U. S. Real GDP will grow in the 4% to 5% range in 2021, with more recent forecast on the higher end of that range. Globally, real GDP is now projected to grow by 5.5% this year according to the IMF. The upward revisions largely reflect expectations of a successful rollout of the vaccines in combination with additional policy support. Because of the upward revisions, U. S. Real GDP is now expected to return to pre crisis levels by the second half of this year, which is 6 to 9 months faster than what was originally assumed in most baseline forecasts. Employment forecasts have also been revised upwards. Next, please turn to Slide 7. So the stronger economic backdrop also puts the property market on a faster road to recovery, though again, I would emphasize the path forward will be uneven. As we observed last year, the pandemic accelerated a few trends that were already in the making and because of that, certain property sectors have recovered more swiftly. The industrial sector, for example, benefited greatly from the accelerated shift to online shopping. In the U. S, industrial space absorption registered at 268,000,000 square feet in 2020, which was higher than the levels observed in 2019 and industrial occupancy is currently hovering at near record highs. Data centers, life sciences, self storage or other sectors that are benefiting from secular shifts and accelerating trends, and we do expect these strong trends to continue in 2021. The apartment sector was another bright spot, particularly in the capital markets last year. The apartment sector was the leading property sector for investment in the U. S. In 2020 and also gained share in Europe and Asia Pacific as a percentage of total sales volume. In terms of the office sector, as it concluded in our impact study last year, office occupancy, meaning the total amount of occupied office stock and rental rates will fully return to pre pandemic levels, but the exact timing depends on many factors, many of which at this stage are unknowable. Like other sectors that rely on bringing people together, much of the recovery ties directly to the path of the virus itself and the rollout of vaccines. But here's what we know. We know that the pandemic had a significant impact on office leasing fundamentals last year. In the U. S, we observed 104,000,000 square feet of negative absorption in 2020, with vacancy rising from 12.9% pre pandemic to 15.5% by year end. And we know that the work from home dynamic still needs to filter through. We also know that according to multiple studies and surveys conducted both by the commercial real estate industry and outside of the industry, most companies do plan on returning to the office when it is safe to do so. From various focus groups and studies, very few businesses are indicating that they plan to move to a 100% remote working model. In fact, according to a recent survey conducted by PricewaterhouseCoopers, 87% of executives believe the office is critical for collaborating with team members and building relationships, while the remaining 13% are considering a more virtual remote working model. Although there is no consensus on the optimal balance of remote versus in the office, it will undoubtedly vary greatly based on many factors such as the business itself, the industry, the job function, personnel and other factors, most surveys show that the majority of employees and employers expect to spend 2 to 4 days in the office post COVID. It's this fact in combination with the fact the economy will continue to produce knowledge based workers, positions that typically drive demand for office space, indicates that the office sector will continue to play an important role in organization strategy and structure. We also note that in certain parts of the world where the virus has been more contained, the office sector has already started to rebound. In the Asia Pacific region, for example, office space absorption region wide turned positive in the second half of twenty twenty and office sales volume increased by 9% in the Q4 compared to a year ago. Although every region of the world is different, if the trajectory in Asia Pacific is a useful guide, when the virus becomes less threatening, the office sector will begin to recover. In terms of office leasing in the U. S, we also note that last year we observed an abnormally high percentage of short term renewals. Not only did renewals account for an unusually high percentage of leasing activity, but nearly 1 third of those renewals were for 1 year or less, which is nearly double the norm. These short term renewals could translate into an increase leasing volume activity in late 2021 2022 as there is a broader return to the office. Lastly, on Slide 8, and importantly, we know that the capital markets enter 2021 with momentum. According to data from Real Capital Analytics, global sales volume plunged in the Q2 of last year, which was the nadir of the recession, but since then, volumes have generally been trending upwards. In December, U. S. Sales volume for all product types registered at nearly $71,000,000,000 which is on par with some of the strongest months of activity on record. The drivers of demand do appear to be gaining momentum due to the following factors: the low interest rate environment the attractive yield gap, which is the cap rate spread over long term sovereign bonds, pent up demand for real estate assets and pent up demand from cross border capital. Again, there is still a great deal of uncertainty and there are many alternative scenarios to the ones I've described, but the virus and the economy follow the most probable script and there are also strong reasons to be cautiously optimistic. And with that, I'd like to turn the call over to Duncan. Duncan? Thanks, Kevin, and good afternoon, everyone. Before covering our 4th quarter results, I wanted to build on a couple of items Brett mentioned earlier. As we've said on past calls, we've been active in managing our cost in 2020. As a result, we achieved over $300,000,000 in savings consistent with what we said during the year. These actions include the permanent cost initiatives announced in March, which contributed $125,000,000 of savings in the year. All of these actions have been completed. In addition, we achieved over $175,000,000 in temporary savings during the year. These savings included reductions in travel, entertainment and events, reduced spend on third party suppliers, start furloughs and part time work schedules in impacted businesses. Government subsidies and support comprised $37,000,000 of these savings. Also included, the total annual bonus compensation for non fee earners in 2020 was significantly below target. Above and beyond the cost reductions, variable costs in 2020 declined as a result of lower revenue across different service lines and geographies. These reductions included broker commissions, Fianna profit share, direct client labor and materials and 3rd party subcontractor costs. In addition, our financial position is strong. We ended the 4th quarter with $2,100,000,000 of liquidity consisting of cash on hand of $1,100,000,000 and a revolving credit facility availability of $1,000,000,000 We had no outstanding borrowings on our revolver at any point in 2020. We have managed our liquidity to bolster our financial position and flexibility. As we have mentioned, we are actively looking for opportunities to acquire through infill M and A. We are well positioned should opportunities arise. With that backdrop, on Page 10, we summarize our key financial data for the Q4 and full year. For the Q4, fee revenue of 1.6 $1,000,000,000 was down 15% and adjusted EBITDA of $198,000,000 was down 34% as compared to 2019. The ongoing stability of our PMFM service lines partially offset the impact of declines in our brokerage and valuation and other service lines. On balance, fee revenue trends for the 4th quarter were ahead of expectations, particularly in brokerage. For the full year 2020, fee revenue was $5,500,000,000 down 14% and adjusted EBITDA of $504,000,000 was down 31% versus 2019. Decremental margins were 24% for the full year, which was in line with our projections. Moving on to Pages 11 and 12, where we show fee revenue by segment and by service line. For the Q4, leasing and capital markets revenue declined to 37% and 14%, respectively, were better than in an environment where we have seen narrowing of the spread between price expectations and return requirements. Additionally, we also believe that some U. S. Deals, which were delayed throughout 2020, were pushed through to closing at year end in anticipation of potential tax rate changes. While encouraging, we are cautious with regard to our expectations in this service line as we look at the Q1 of 2021. Helping to partially offset these brokerage trends was the stability we experienced in our PMFM service lines, which was up 1% in the 4th quarter and for the full year. Excluding the impact of the deconsolidation of the revenue associated with China JV executed with Wonka earlier this year, our PMFM service line was up 6% for the quarter and full year. This mid single digits growth has been typical of what we have seen in prior years. Within PMFM, Facility Services represents just under half of the fee revenue. In facility services, we typically self perform or subcontract a variety of services through our operations in both the Americas and APAC. This business generates solid cash flow on a stable revenue stream and on an annualized basis typically has low single digit growth. In 2020, facility services in the Americas was up 7% compared to 2019, reflecting strong demand for our services during the COVID period. With that, we will start a more detailed review of our segments, starting with the Americas on Page 13. Fee revenue in our Americas segment was down 12% for the quarter. Leasing and Capital Markets were down 40% and 3%, respectively. These trends were partially offset by PMFM, which was up 7% for the quarter. Within our Americas PMFM service line, our facilities services operations represent a little over half of our fee revenue and were up 7% for the quarter as well. We saw a very strong finish to the year in Capital Markets, and we will be monitoring this encouraging trend closely in 2021. Leasing trends in the Q4 were broadly in line with our expectations in the Americas. Americas adjusted EBITDA of 127 dollars was down year over year, primarily due to the impact of lower brokerage revenue. This impact was partially mitigated by the permanent and temporary cost actions in this region. Moving on to EMEA on Page 14. In EMEA, fee revenue declined 16% for the quarter. For the quarter, leasing, capital markets and valuation and other were down 28%, 35% and 18%, respectively. These declines were partially offset by growth in our PMFM service line, which was up 14% for the quarter. 4th quarter adjusted EBITDA of $43,000,000 was down $22,000,000 or 38% versus the prior year, primarily due to the impact of lower brokerage revenue. This impact was partially offset by cost saving initiatives and growth in our PM FM service line. Now for our Asia Pacific segment on Page 15. Fee revenue was down 24% for the 4th quarter. The deconsolidation of the PMFM revenue associated with the joint venture in China with bunker services accounted for nearly half of this decline. Our PMFM service line represents roughly twothree of the fee revenue for the segment. Leasing and Capital Markets were down by 27% and 44%, respectively. Capital Markets was down primarily due to a continued slowdown in activity in Hong Kong, which is largely unrelated to COVID. 4th quarter adjusted EBITDA of $27,000,000 was down $19,000,000 or 44%, driven by lower brokerage revenue, partially offset by our cost savings initiatives. Turning now to Page 16. The near term business outlook environment remains highly uncertain, and we continue to have a limited line of sight to revenue trends in our brokerage service lines. While we believe there will be a full recovery in brokerage revenue over time, the shape and speed of this recovery continues to be difficult to predict. We are hoping to see continued improvement in brokerage in 2021 as the economy continues to heal, although we do expect the Q1 of the year to show a material decline year over year. In 2020, the impact of the COVID pandemic on our business began in March. Responding to this uncertain outlook, we've identified specific actions within our operating budget that will drive more permanent cost reductions impacting 2021 and beyond. Actions include converting some of the temporary savings from 2020 into permanent savings as well as implementing a portfolio of projects across our segments and back office functions to improve efficiency and enhance our operating model. The impact of these cost savings actions will ramp up during the year and continue to have impact into 2022. We are not providing guidance for the year at this time. However, I would like to provide some remarks to help investors model our business where we do have reasonable line of sight. 2020 permanent cost savings contributed about $125,000,000 in year and temporary cost savings, including a lower bonus expense contributed over $175,000,000 again in year, giving a total of over $300,000,000 in savings. In 2021, we expect the additional permanent cost savings, which I have referenced, to contribute significantly and to offset much of the unwind in temporary cost savings that will inevitably occur throughout 2021. Net net, at the end of 2021, as we enter 2022 and compared to 2019, we will have executed a significant reduction in permanent cost over the 2 years, even as most, if not all of the 2020 temporary cost actions were unwound by them. However, in the year 2021 itself, the impact of permanent cost reductions will not be sufficient to cover the return to a more normal staff bonus expense, which we project will be a drag in 2021 of about $50,000,000 mainly impacting the first half of the year. We expect growth of lowtomidsingle digits in PMFM in 2021. In brokerage, we expect to see a decline in revenue in the Q1 and some recovery in the remainder of the year, especially if we continue to see economic recovery in the second half of the year. We do not expect brokerage to recover to 2019 levels in any quarter of 2021. But to be clear, we do expect brokerage revenue for 2021 to be up versus 2020 for the full year. As a result of the cost drag and the shape of the brokerage revenue during 2021, we expect that our EBITDA will be more heavily weighted to the second half of the year than we would see in a typical year, such as 2019. We anticipate having a better view on the brokerage recovery in the second half of twenty twenty one and will provide an update on our expectations as visibility improves. As Brett said, you can be confident that whatever the COVID pandemic outcome and economic impact, we will continue to focus on the welfare of our employees, supporting our clients, the financial strength of our company and our profitability in 2021 and for the long term. So in closing, this is my last earnings call with Cushman and Wakefield. When I joined the company in 2014, my objective was to support and lead our business through a period of rapid growth and transformation. I'm very proud of what we have accomplished, particularly taking the company public in 2018. Today, Cushman and Wakefield holds a robust financial position among major firms in our industry and is poised for continued sustainable growth and success. I am very grateful for the partnership that I've enjoyed with Brett, my Cushman and Wakefield colleagues and my finance team and with many of you listening to this call. I congratulate Neil on his appointment as CFO, and I wish him all the best. I look forward to watching the firm continue to grow and wish everyone continued success. With that, I'll turn the call back to the operator for the Q and A portion of today's call. Thank you. We will now be conducting a question and answer session. Thank you. Our first question is from Anthony Paolone with JPMorgan. Please proceed with your question. Okay. Thanks. And thanks Duncan for all your help over the last few years. Best of luck. My first question is with regards to thinking about margins given your commentary. If we think about the $50,000,000 which seems to be the year over year drag that you won't be able to offset, that would seem to imply that margin start, I don't know, 80, 90, 100 basis points down. And then how should we think about the incremental margin that would help move that back up as we think about growth in PMFM and brokerage in 2021? Duncan, why don't you take that? Yes. Can you hear me? Yes. Yes. Okay. Good. So yes, it's a good question. As you've got the drivers there is the mix of those 3. So you're right. We're saying there's going to be a drag from bonus. We won't be able to offset with permanent cost about $50,000,000 in the first half mainly. And then we're saying, yes, the things that will obviously give us higher margins will be the organic growth. PMFM is typically a little bit less margin rich than brokerage. And so we expect the sort of low to mid growth in PMFM that will obviously help on the margin side. But then the big question will be how much brokerage growth we actually get, which will be really driven by the second half of the year. Tough to say exactly how much that will be, but it will be obviously the highest incremental margins of those two areas. So you've got a pretty good idea, I think, of what the incremental the decremental margins were last year purely on brokerage. So I think it's really just a question mapping out the blend of those 3, given the assumptions you want to make about brokerage recovery in the back half of the year. And we're not guiding to that. I don't think we have a crystal ball. Those will be the drivers. You've got those right. Okay. Do you think the incremental there should be better than that 24% decremental you had in Right. Yes. So sorry. Yes. So just thanks for clarifying that. Yes, it will be because the decremental was after cost savings, right? So if you thought about really what happened last year, just to kind of help you with the mapping out here, right? We did 24% decrementals, mid-20s, that's kind of what we said we would do. But that was after all those cost savings we did, right? So the decremental before all the cost savings obviously are quite a bit higher than that. And so we'd be hoping in brokerage to get incrementals that were quite a bit higher than that this year. It all depends on how much brokerage revenue we actually get. Okay. Got it. And then just my second question maybe for Brett. Can you just give us an update as to how you're thinking about investing and acquisition opportunities? You mentioned the liquidity position and the ability to do infill deals, but just wonder if you could size up the landscape and how you're thinking broadly there? Sure. I'm happy to. So you're right. We're sitting at the moment in a very, very liquid position, a lot of capacity on the balance sheet. I think given where we sit today and our outlook on the back half of this year and then 2022 and 2023, which is getting a bit bullish, our appetite for infill M and A, our appetite for strategic recruiting is quite high. And we never truly turned off our search for good opportunities during 2020, but we certainly kept some on the back burner. And I think we're now at a place where while we certainly don't have 100% certainty about our outlook for the year, we sure feel a lot better about the near term and midterm future than we did 11 months ago. So lots of we are hoping we'll see lots of opportunity in the infill M and A market, lots and we're leaning into those with real vigor right now. And we're leaning into those with real vigor right now. Yes, it's Duncan. Can I maybe just come back in on the margin point we made before, just as a point I forgot to make, which I think is probably pretty important? Tony, you probably appreciate this. But as I said in the remarks, and Brett made exactly the same statement in his remarks, the real net net of all the costs we're doing is that by the time the temporary cost is sort of unwound, we will have saved a lot of permanent cost here. And what that really means is that our ability to get back to 2019 margins, which were just a bit north of 11%, our ability to get back to those, we'll be able to get back to those at a low level of brokerage activity than we had in 2019. So it basically means that we'll be able to sort of improve our overall margin structure with all the permanent cost we're taking out. So obviously, the timing is uncertain of that, but the nature of that strong permanent cost out is that we will be able to get back to 'nineteen margins at a lower level of brokerage activity than we saw in 2019 dealers brokerage is recovering. Okay. I think I understand that. Thanks. Thank you. Our next question comes from Stephen Sheldon with William Blair. Please proceed with your question. Hi, thanks. Appreciate the high level expectations for 2021. Wanted to ask about the expectations for PMFM to grow low to mid single digits. It seems to assume that the business growth is pretty consistent in 2021 as you saw the past few quarters. Is there anything notable that you're assuming that would keep that from accelerating more, including your ability to implement new mandates? And have there been any notable changes that you've seen in the competitive environment as you pursued new contracts there? Sure. This is Brett. Well, first, as it pertains to acceleration or deceleration of the growth of PMFM, I would say that the structural trends in that business are playing out as we would expect they would, which is to say that this is a mid single digit and in good years perhaps a high single digit growth top line growth business when you combine our PMFM businesses, which includes a very large self performance business. The trends in the industry right now are favorable for us and favorable for our 2 large peers and nothing there has really changed. On the competitive landscape, no, this is a really a 3 firm business. And I think clients quite comfortable and settled with that, that they have choices and good choices in the industry for PMFM Services and Self Performance Services. There's a I wouldn't say it's an even distribution of the work and we're fighting to get our fair share having come from a much smaller place 4 or 5 years ago. But we like the trends we're seeing. I can tell you that we are seeing in 2021 some mandates of a size and a quality that we have not been invited to pitch before, again, indicative of an ever improving platform in a better competitive position for C and W. But the PMFM business and self performance business for us remains very, very important to the long term value thesis for the firm. It is a growth business, was last year, will be this year. And I would say that the competitive dynamics continue to favor Cushman and Wakefield and its 2 larger peers. Got it. That's good to hear. Thanks for that. I just wanted to ask about what you're seeing on the office property sales side. How have activity levels there looked? And for deals that are happening, what have the buyers been willing to assume in terms of office leasing to get deals closed? And I guess maybe more specifically, do office property buyers appear to be willing to assume that office dynamics in terms of space utilize the lease price and etcetera will more or less fully recover? I think it's a mixed bag. In 2020, we certainly saw fewer of the marquee, very large Class A office trades as compared to the prior few years. And that's not surprising given the turmoil in the marketplace. And I think that there's a real bifurcation in the market among geography and among quality and size of assets. So there are markets where I believe we are seeing buyers relatively comfortable around the underlying fundamental dynamics in the market and the occupancy rates and let's call it mid term rental rates for the buildings. But when you if you look at the data or the forecasts that are out there, just consider these for a moment. So at the moment, we're forecasting that vacancies peak in 2022, that we start to see rent growth begin to move positive in late 2022 and absorption moving strongly positive in 2022. So if a buyer is looking at a building with not a lot of rollover in the next couple of years, high credit tenant, high quality building, they're probably a bit more sanguine about their midterm, long term underwriting than say a building with lot of vacancy in it right now. But I would say this is it's a really interesting question. It's one that's not completely answered yet. I do believe that the first 9 months of this year are going to give us a lot better signaling around how the investment community is going to look at high quality Class A office assets, mid term, long term. But at the moment, I would say that the general investor market is pretty much aligned with what Kevin said, which is rough times for sure right now, like there are any recession, but the long term prospects for high quality Class A office space and even Class B in good locations is fundamentally sound generally in the long term. So we don't you saw last year, we saw a number of trades in the office sector, people investing real capital in the office sector. We expect to see the same happening this year. But it's behaving not that much differently than any other fairly severe short term recession. I think that people the questions that are really unanswered right now are around same store office occupier footprint today versus what someone might renew or lease 2 or 3 years from now. I think that it's I think it would be fair to say that most large office occupiers as they think about their footprint today would say that if they were renewing today or signing new lease day, they try and get a bit less square footage. But as Kevin said, that dynamic and the work from home dynamic over the next 3 years, maybe a bit longer, maybe a bit shorter is mitigated by the growth in office employment. And so as we look at the office sector and we look at the office sector as an investment and an investable class asset class, the mid term and long term prospects for it we believe are positive, although it's going to be rocky for the next couple of years. Got it. Really helpful. Last one for me. On the Q1 brokerage guidance, it's supposed to be down, I think, Duncan you said materially. Can you frame at a high level any differences you expect to see between the leasing brokerage side and capital markets? I would just say that go ahead, Duncan. You got it. Well, I was just going to say that the math is just simply that I mean really COVID only kicked in sort of halfway through March last year. And so we'd expect year over year to sort of see some decline driven by that, right? So I don't really have a specific point of view as to the mix of that between leasing and capital markets. I think what we did see and maybe Brett will add to this in a minute, but the Q4 thing that we saw in Capital Markets, which was unusually strong versus what we'd expected, we don't expect that to be a sort of necessarily a general trend all the way through 2021. I do think for the reasons that Brett alluded to that we think of that as something that happened in Q4. So but I think it's I don't think we have a specific sort of view that the particular trend we're talking about in Q1 will be that much different between leasing and capital markets. What do you think, Brett? Yes. I think it's again, it's a bit of a mixed story. So right now, in this environment, very low interest rates, awash with liquidity, hard assets like commercial real estate are attractive. That of course is balanced by concerns around the office market and what it means when everyone goes back to work and how much space is going to be ultimately released into market or not. And by the way, a lot of space has already been released in the market, 100,000,000 square feet of negative net absorption in 2020 is already in the system. We expect a bit more in 2021, but less than we saw in 2020. Capital markets clearly through this last recession and now the early days of recovery, capital markets are leading that recovery, which is not what happened in the GFC, but it's a different environment. We GFC, we had a crisis of liquidity. Today, we are awash in liquidity, dealing with other issues. So capital markets is in probably, I think it's hard to say in better shape today than we would have expected. The leasing markets, as Kevin said, you had an awful lot of commercial real estate occupiers kick the can for a year or 18 months down the road last year if they had a lease coming up for renewal, they needed to do something with their lease. You can't do that forever. And as Kevin said, that augurs for perhaps a bit stronger recovery in leasing as we get to the back end of this year and early next year. But again, that also partially mitigated by folks looking at their square footage and wondering if they can live with a bit less rather than a bit more as they would typically do. So all of that to say, we're in early, early days of recovery here. A lot of things have to fall in the right place for this to be a strong back end of the year. At the moment, we see some positive signals. Capital markets, certainly in the Q4 was a very pleasant surprise. Capital markets in general are active, and that's a good thing. And I do believe as Duncan referenced in his comments and Kevin did in his that as we get to herd immunity, as we get to a post COVID environment, there's going to be a pent up demand of leasing activity that has been curtailed during the shutdown that is going to need to get dealt with in a probably a positive way. Great. Thank you. Thank you. Our next question comes from Vikram Malhotra with Morgan Stanley. Please proceed with your question. Thanks for taking the questions. You've seen several sort of recessions in the brokerage industry wearing different hats. And I know every recession is different. But I'm wondering sort of given what we know today, how is the visibility? I'm not talking about the pace of recovery because that's difficult to predict, but just the visibility from leading indicators today versus sort of say prior recessions, is the visibility better, similar, worse? Is there anything that you feel is different? It's a good question. Well, first of all, in terms of visibility, every year we move forward visibility for all the firms in the industry gets better because we're using technology better. We're just getting better at examining, measuring and forecasting from pipeline activity and client data. I would say that as we look forward from today and our visibility into how 2021 might behave and how '22 and 'twenty three might behave, I would say that certainly the data we have today, the forecast and research we have today feel to us to be certainly a bit more concrete, maybe better and higher quality than they were in the last recession for a lot of reasons. And the when you think about the midterm here and the long term here as we've been repeating in the Q and A, there are a number of data points that are positive. And we're watching those carefully, but it has to do with the pace of immunization, it has to do with the number of leases last year that were renewed for a year instead of 7 or 8 or 10 years. It has to do with what we think GDP will look like this year and how that will translate into potentially job growth and occupancy of commercial real estate. Those are all very positive. The negatives are what we've talked about. The negatives are what is the long term complexion, nature and function of office space. And as we said, we think that that's long term in good shape, short term under some pressure. But I would say that we're being very careful in providing forecasting data to you right now. We're not providing guidance and that's for a reason. And that is there are so many variables out there right now that could move. But I would say and you've heard it in our tone, we feel a lot better about what the back end of 2021, 2022 and 2023 are going to look like than we did 6, 7 months ago. But that's not as far as I'll take it because in this environment, that could change and it could change quickly. But at the moment, our visibility is decent. Pipeline data is good and we're watching it carefully. And I'd say that the comments that Kevin made, comments that Duncan made about the year and the shape of the year, we feel pretty good about at the moment. Duncan, anything you want to add to that? Yes. So I was just going to be with you, Brett. I mean, the thing is that obviously, the recessionary event that this time around, because of it being essentially natural disaster, you've got this sort of Q2 'twenty was very much a trough. And so really now, we're just sort of dealing with the aftermath of that event and sort of recovery from it as opposed to waiting to find bottom. We kind of know where bottom was. Now we're just talking about speed of the recovery, nature of the recovery, patchiness of the recovery by sector, tough to predict, but we're no longer trying to find bottom, right? So it's more of a sort of judging the recovery. The other thing is obviously very different this time around is capital markets. It looks like a much stronger leader than it was when it was lagging in the GSE. Yes. That's interesting. The thing about this Vikram, as you ask the question, thinking about this. So if you're shaping a model and you think about how do you model 'twenty one, 'twenty two, 'twenty three compared to coming out of the GFC. And there's a couple of variables that are different. One is in this situation, capital markets are much healthier right now than they were 1 year from the trough of the GFC, just much healthier. The second is that the question around office space in general. And so that is a potential negative variable. The rest of it is pretty traditional recessionary modeling, right? The pace of recovery, the type of recovery, the way it should work, probably isn't going to be wildly different than the last couple of recessions that the U. S. Economy and other economies have been through. The variables that are different here a healthier capital markets environment, a lot of liquidity, and then the question mark around utilization and demand for office. Those are the 2, I think just generally speaking, fairly unique variables here. That's fair. That's really interesting and good color. Just building on that office comment, maybe for you, Brett or Kevin, I know there are shorter term renewals last year, but as you look to this year and beyond, especially for many of the larger leases tend to start negotiations a year or 2 years prior to expiration. So your comment on many tenants may if they look to renew, I think if I'm paraphrasing, they look to renew in the next 2 years, they would potentially seek or think that they can get slightly less space. Is that based on just high level conversations or what you're hearing? Are there any differences between large or small tenants or by sector? Just want to get more a bit more color on that comment you made. Yes. Unfortunately, and I don't know if Kevin first of all, is Kevin still on the line? Yes. Yes. I'm happy to take a swing. Okay. Yes. Kevin, why don't you hit this ball first and I'll just add any color when you're done. Sure. So I think the way to think about it is and I'll use some numbers. So in a typical year in this idea there's pent up demand that's likely to be executed on in the future, whether that's second half of this year or into 2022. Here's I think the way to think about it. In a typical year, there's about 400,000,000 square feet of office leasing that occurs in the U. S, right? And that's based on 87 markets that we track. And so that's all leases, right? That's new leases, that's which means businesses coming to the market to lease space. It includes renewals. So businesses just renewing their lease. So that's all in about 400,000,000 square feet. Last year, there was only about 50,000,000 square feet of leasing that was completed market wide, right? So significant drop. So the inference there is companies didn't know what to do, right? And so businesses that were in the market looking for space, many of them stopped. And some businesses that had leases expire, some of them said, let's let's let that expire, let's go home for a year. We'll figure this out once we have more certainty. And many just said, let's renew a short let's do a short term renewal and we'll figure it out next year. And our tracking of renewals shows that it's that number of renewals was double the norm. So that was the environment. Now fast forward to this year and what do we have? Well, there's likely this pent up demand dynamic where the businesses that stop looking for space, they start up again and they look for space, they find space, they lease. Businesses who renewed last year for 3 to 12 months, which was very high, will now say, well, the pandemic is showing signs that it's behind us. Let's go forward and sign a longer term lease. In businesses who said, let's just go home for a year, some will say, well, that was okay for some of the team, but it wasn't okay for everyone. We need to get back and have some space to be productive again. They'll sign a lease. And so I think that's sort of the maybe the way to think about it and modeling it going forward is, will that pent up demand activity? When will that get captured? Maybe 2021, probably a good portion of it will. And then again, I think maybe even stronger in 2022. So that's sort of my read on it, Brett. Yes. And I'd only add to this, it's well said, Kevin, by the way. I would add to this is like the early days of pandemic when people were talking about there are a lot of rash rhetoric in the market about we'll never use office again or we're going to cut our footprint by 50%. And really so far at least none of that happened. I can find as many CEOs right now, we'll give a specific example. 1 of our larger one of our competitors, I was in a conversation with them not long ago and they told me they had just renewed their HQ location. This would have been late summer of last year. And he told me that they renewed it at almost exactly the same square footage that they had. And he said we could have changed buildings, we could have cut back, we could have added, we ended up getting about what we had before. And for a lot of reasons, they have redone the space, they were using the space differently, but they weren't able to get any less space. I can find a lot of CEOs that would tell you that they're going to try really hard to take less space in the near term. And as I mentioned, others that will say they're going to take the same or might take more because they have a growing business. So I think, unfortunately, this is a very fluid situation. I think Kevin, his considered view with the data that he's saying is probably the best place to land on this though. And again, for us, there's a lot of rhetoric in the market, pointing a lot of different directions, but rhetoric does not necessarily mean that is the way actions will ultimately be taken. Fair enough. Just last one on the PMFM business, just post pandemic and just given kind of the increasing focus on ESG climate change, can you talk are 2 specific drivers meaningful changes to the revenue line? 1 in terms of just cleaning and security post pandemic across the board. And then just anything climate change related, does that eventually add to the business for PMFM? I would say that the all the work around ESG, in particular carbon, is certainly a revenue line for the services industry. And whether that will be a material revenue line for Cushman and Wakefield or our peer group or for others, I think is an open question. Certainly, all of us are quite focused at the moment on the potential business opportunities around building retrofit, building analysis and data gathering and so forth. So certainly, it's a bit like a Y2K event. Building owners and likely building tenants are going to be paying a lot of money in the future around this issue and people service providers will be receiving some of that revenue from consulting work or retrofit work that they're doing remains to be seen whether it's a needle mover in the for us or other firms like us in the PMFM space. But there's a lot of energy and work right now in our space and in adjacent verticals such as big engineering firms and design firms all in this area. So it is I think it's most fairly and best describe it as an emerging and likely material opportunity for the industry. Great. Thanks so much. Thank you. Our next question comes from Mike Funk with Bank of America. Please proceed with your question. Yes. Thank you very much for the question. And Duncan, best of luck to you and thank you again for the help. A few if I could. So in your prepared remarks, you talked about some of the funnel in property sales being pulled forward into 4Q, just due to thoughts about potential changes in tax rates with the new administration. Can you quantify how much of the funnel you expected to close in 2021 got pulled into the Q4 of 2020? No, I can't we really don't know. But Kevin, why don't you take a shot at this at least anecdotally? And it's true that it's I think impossible to sort of parse that out. But my so there was that spike in Q4 really in December, in sales volume. So my impression is that, that was a combination of factors. I think mostly have pent up deal demand with a larger number of deals having been put off in preceding quarters, largely due to the pandemic and lack of activity. And then that always helped along was we saw more liquidity in the debt markets and then vaccine optimism really started in the Q4. And so I also think there was some incentive from the fear of tax policy changes, 1031 is getting eliminated, something like that. But again, I think the strong sort of December was a combination of factors. And then on the go forward, I think, we sort of you have to see how tax policy changes and go from there, will it change. Tax policy changes tend to be phased in. And so if there is a change, it's likely to be a phase in over years. And we sort of when you study the capital markets and just property throughout history, as long as there's time for the market to adjust, it adjusts to changes in policy. There's all the other factors that are every bit as important, state of the economy and interest rates, geopolitical dynamics and so forth, I think are just as important in sort of gauging that the future trajectory there. Yes. Thank you for that. Maybe one for Brett and Kevin, if I could. So I appreciate the slide, but you try to show expected recovery in different property types. And it seems like the office piece correlates with consensus around reopening by kind of September back half of the year for repopulation of offices. So is your expectation that office leasing picks up after the repopulation? So when you're talking with clients, are they saying they want to actually get people back into the office, analyze and evaluate how they're using the space? And then after they do that, recalibrate the space they need? Or is it different? Do they try to do that before the repopulation of offices? Do they already have plans in place in terms of space needs? Yes, it's a great question. And the answer is yes, yes and yes. So it's just every company is different. I think look, if I'm going to generalize, I think that many, many companies are on a wait and see. And when no one's showing up in the offices and everyone's working from home, there's a lot of thinking going on. But until we get we think that that marker is probably around Labor Day, but we get past that marker and we start to see a more aggressive repopulation of offices, I think my guess is that is when lots of companies will really begin to consider what their midterm and long term plans are for their footprint. Certainly, there are companies, a lot of them that have been doing that for the past year. And if you talk to the folks at Gensler or other firms like that, they're doing a lot of work with as we are with customers on rethinking the footprint. But again, and I'm horribly generalizing, but generalize, I think that these types of decisions are likely to be made post occupancy rather than the next few months. That's anecdotal. Now Kevin's got better data on this than I do. Kevin, anything you want to either dispute on that or add to it? No, I agree. I think it's very difficult to predict the return, full force return to office with any precision, a lot of moving pieces. If you look at it as of today, it's roughly 25 percent of employees are going into the office and that's based on Castle Access data. And there doesn't appear to be a rush, certainly not in the next, let's say, 2 to 3 months, a rush to get people back. As the vaccine gets administered to more people, we will gradually see more people return to the office and more occupiers encouraging employees to or CEOs encouraging employees to return to the office. And from there, I do think that's where you see more of a significant pickup in activity in general. But I agree with your assessment there, Brett. My best guess and what we're really hearing from a good majority of our clients is that sort of the return to full force, there will be a gradual return, but full force return likely to be probably more in the September of this year timeframe. Yes. And on your question about so how do companies make decisions about the long term for office space? If you think about the statistics that Kevin gave, the vast majority of office workers are going to be in the office the majority of time. It may not be 5 days a week, might be 3 days a week or 4 days a week. It's not that easy for a company to rework their footprint down because people aren't going to be off a day or 2. So maybe everyone's going to try. But it's this is, I think, going to be somewhat of an incremental process and we're not going to really know how this plays out in the marketplace, I don't think for some quarters ahead of us. Yes. One of your peers said 85%, right? If it was 100 before it would be 85% in the future. So it sounds like you're willing or able to? Kevin's projections are almost Kevin, what you can say for yourself is almost exactly that. Sure. Yes. So what's interesting about that is, so I think there's just a ton of conjecture on that topic and we've modeled it and made our assumptions. Surveys generally show that businesses will not require somewhere between 10% 30% less space, somewhere in that range. But what's I think really interesting is so far just so far what's really happened is the total amount of occupied space in the United States has declined by less than 3%. And that's not I'm not saying that's not insignificant. As Brett said, there's 100,000,000 square feet of negative absorption. So space that was leased pre pandemic now empty. So it's not insignificant, but 2.7% is very far from 15% and feels very, very far from 30%. And so I think we're just going to learn a lot more this year. Yes. If I could, one more quick one for Duncan, just being a square of time. Duncan, in PMFM, any potential impact from wage inflation on margin there, either through minimum wage hike or otherwise? What are your thoughts on that? Generally speaking, not right, because most of our contracts, we're able to recover that. So I don't think it will be a particularly material impact on us either way. Okay, great. Hey, thank you all for the time. Thank you. Our next question comes from Rick Skidmore with Goldman Sachs. Please proceed with your question. Good afternoon. Just a follow-up question. As you look at Asia Pacific and my assumption is that Asia Pacific is a few quarters ahead of the U. S. In terms of returning to the office and vaccinations and the virus. Is there anything to learn from what they've done and specifically around office leasing that might translate into the U. S. Market? And then maybe a follow-up on that would be, as you look at your Asian business would have expected maybe Asia Pacific to be a little bit better year over year. Can you just maybe elaborate on what you're seeing in the Asia Pacific market? Thank you. Sure. Sure. Well, let me just start with generally speaking. So generally speaking, you're right. Asia Pacific, for different reasons in geography, we look at as a leader coming out of the pandemic and the recession as it pertains to our asset class commercial real estate. I think these early days, as was mentioned, I believe, Kevin, in your comments, we're seeing return to leasing activity, return to support in the leasing markets in Asia Pacific as a leader because they are coming out in many jurisdictions before we are here. As it pertains to our own business in Asia Pacific, it's a very large business, it's a very diversified business. There are positives and negatives in Asia right now. Hong Kong is still very, very locked down. They disimposed a 21 day quarantine for anyone that wants to come in to Hong Kong. Basically, they're saying is we don't want anyone here. And that has flowed through that market's property markets and that lockdown in a very severe way. On the other hand, our Venky JV in Mainland China for PNM FM did quite well in 2020, and we think we'll do the same in 2021. So I would say that just generally speaking, Asia Pacific as a leading indicator for Western Europe and the U. S. Would be a positive. We would take positive takeaways from that. But that's again very early days and a bit of a mixed bag over there. Kevin, I know that you don't specifically spend a lot of time in Asia Pacific. Any comments you want to add to that? No, I think that pretty much covers it. There's it is a positive story. There's increasing number of examples where businesses in that region of the world are not are actually absorbing space. They're actually expanding and taking more space. And Mainland China is an absolute example. In fact, that region of the world absorbed 23,000,000 square feet of office space in the second half of last year. It was actually double what they absorbed in the second half of 2019, Beijing, Shenzhen, Shanghai, all positive. And it's not just in Mainland China, you're seeing it in some of the Indian markets in Seoul, Korea. And so I think it's important to point out the work from home dynamic is less accepted across that region of the world for a number of regions, cultural reasons and other factors. So I don't think we can say that, that what we're observing there, that same pattern will be followed in other parts of the world. But equally, I don't think you can dismiss the fact that the one region of the world where the virus is more contained is seeing more of a snapback in demand for office space. Yes. And I would just add to that. I just received a text from our company President who's in London staying up very late this evening. But John Forrester pointed out that what he's seen, at least in the early days, is that it's not necessarily a direct correlation between 10% or 8% or 15% less people in the office and 8%, 10% or less or 15% less need for space. And so trying to put in layman's terms and I use this example with our competitors at their headquarters. You may leave 8% or 10% of your office staff at home permanently. You may very well use that space differently going forward and not be able to have less space. It's people are definitely going to rework the way they lay out space going forward. There's a lot of energy around that right now. Doesn't necessarily mean though that if you cut how many people are in the office in any given day by 15% or 20%, you can just cut your square footage by 15% or 20%. And John just mentioned to me by text here that that's his what he's seeing at least in these early days in the marketplace. I think it's a very good point. Great. Thank you for the color. Thank you. Our last question comes from Patrick O'Shaughnessy with Raymond James. Please proceed with your question. Hey, good evening. In the interest of time, I'll just keep it to one question. So multifamily and industrial logistics are obviously pretty hot areas right now. How comfortable are you with your company's capabilities in those property types? And what are your aspirations to potentially build further in those areas? Yes. It's a great question. We love those 2 verticals, but multifamily, industrial logistics are they're right in Cushman and Wakefield's sweet spot. We have a very, very deep capability, particularly in the U. S. And parts of Asia Pacific and industrial logistics. We would like to up weight industrial logistics in Western Europe and we that is one of the initiatives that we're quite focused on this year. Multifamily, we identified multifamily some time ago as a very attractive vertical for us 5 years ago. We made quite a significant acquisition for the firm in the U. S. On multifamily capital markets. You may recall that, gosh, going on almost 2 years ago now, we purchased Pinnacle, which is a leading multifamily property management business here in the U. S, actually domiciled here where I am in Dallas. We've been bullish on both those verticals. The Industrial Logistics business in the U. S. Has always been one of the core strengths of Cushman and Wakefield. So for us, the good news is we don't have to recognize now that these are great places to do business and start up businesses there. We can now leverage into what is already a compelling platform in both those verticals, recognizing that we have geographies, as I mentioned, such as Western Europe, where we think there's some tremendous white space to grow our industrial logistics business and we intend to do that quickly. Thank you. You bet. Thank you. There are no further questions at this time. I would like to turn the floor back to management for any closing comments. Sure. Well, we appreciate all the questions this evening. You can tell when you're in a very fluid economic situation that everyone is very curious about everyone's views about what the future looks like. And we hope that tonight's call gave you some clarity on our views of the future. We look forward to talking to you all in another quarter. Be well and be safe. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.