Colliers International Group Inc

TSX:CIGI

Earnings Call Analysis

Colliers Forecasts Growth Despite Transaction Dip

Colliers International's strategy shift towards diversified services with recurring revenues over the past five years is now yielding 70% of its earnings, promising resilience and predictability. The fourth quarter showcased robust growth in Outsourcing & Advisory, driven by engineering, project, and property management. Despite industry-wide declines in the Transaction segment, Colliers anticipates a pick-up in transaction velocity in late 2024, encouraged by expectations of stabilizing interest rates. Revenue for Q4 held steady at $1.2 billion, while a 16% decline in Capital Markets was buffered by cost-saving measures. Looking ahead, modest growth early in the year will give way to increased activity, specifically in Capital Markets. Strong interest in alternative investments is also expected to boost fundraising from 2023's $3 billion to between $5 billion and $8 billion in 2024. Adjusted EBITDA and earnings per share are projected to grow, outpacing revenue, and the financial leverage ratio is set to improve to between 1.5x and 2x by year's end.

Resilience Amidst a Market Downturn

Despite the challenging economic landscape, the company has shown a notable resilience, with their brand gaining increased traction in the marketplace. Even in the U.S., where Real Capital Analytics (RCA) volumes were down significantly, the company's sales decline was less than the market average, indicating a gain in market share.

Europe Poised for Improvement

The company experienced variable performance across geographies. The Europe, Middle East, and Africa (EMEA) regions showed signs that the heavy transactional activity which typically spikes in Q4 could become more evenly spread across the year, suggesting a more stable performance moving forward. This potential improvement is anticipated to be driven by a rebound in activity levels and cost actions taken to mitigate lower activity levels in regions such as Germany and the Nordics.

Optimizing Investments and Asset Management

As part of an ongoing growth strategy, the company has a robust pipeline of opportunities centered on acquisitions, enhancing platforms and geographic reach, and capitalizing on recurring revenue streams. Although the fee-paying Assets Under Management (AUM) reflected a slight decrease in Q4, attributed to modest valuation marks and redemptions, this dip was characterized as very modest. Future investment management efforts are pivoting towards infrastructure and credit platforms to supplement organic growth and are core to the company's long-term strategy.

Valuation Considerations with Continued Growth Prospects

Valuation multiples for high-quality assets have risen, impacting the investment environment. However, the company's diversified business portfolio, which covers a range of professional services including a $1 billion engineering segment, presents it as an underappreciated entity when compared to its valued peers. Their strategic acquisitions in markets with high internal growth potential also contribute to their strong growth outlook and margin expansion, especially in recurring business segments.

Leasing and Capital Market Dynamics

Leasing decreased slightly in the last quarter of 2023, with expectations for it to remain relatively flat or experiencing only slight improvement in 2024. This reflects a broader trend of market fluctuation, with differing regional performances and a focus on quality building attributes to attract tenants. The company capitalizes on its increased headcount and successful recruitment, particularly in the U.S., to capture market share opportunities in capital markets globally. The current lending environment remains uncertain due to a mix of factors including interest rates and regulatory pressures.

Tenant Preferences and Market Reactions

Occupiers are showing a preference for flexible lease terms, with the actual lease duration being highly dependent on specific market conditions. This suggests a tactical approach to leasing strategy in an environment driven by supply and demand dynamics.

Bridging Synergies Across Services

Cross-collaboration across different service lines within the company accounts for 20% of overall revenues, a number they are actively seeking to expand. The company emphasizes offering diversified service lines to clients, augmenting client retention and enhancing what they refer to as 'sticky client' relationships.

Anticipating Market Recovery

With an 18-month period of quiet in the market coming to an end, there is pent-up demand for transaction activity. The company's engagement with clients is increasingly positive, providing visibility into a potential rebound in the latter half of the year, especially in buy and sell transactions.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the Colliers International Fourth Quarter Year-end Investor Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties.

Actual results may differ materially from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed in the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission.

As a reminder, today's call is being recorded today, it's February 8, 2024. And at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir.

[Jay Hennick, executive]

Thank you, operator. Good morning, and welcome to the fourth quarter conference call. I'm Jay Hennick, Chairman and Chief Executive Officer of the company. Joining me today is Chris McLaren, Chief Executive Officer of our Real Estate Services business; and of course, Christian Mayer, our Chief Financial Officer.

This call is being webcast and can be accessed in the Investor Relations section of our website, where you can also find the presentation slide deck.

In the fourth quarter, Colliers experienced robust revenue growth in its high-value recurring service lines. Over the past 5 years, Colliers has strategically transformed into a more diversified professional services company by adding significant recurring revenue platforms such as investment management and engineering and project management.

Today, more than 70% of our earnings comes from these recurring services, providing our company with more balanced, more resilience and more predictability than ever and similar in many ways to other highly diversified global professional service companies.

Throughout the year, we observed industry-wide declines in one segment of our business, our Transaction segment, our Capital Markets business. However, we expect a return to higher transaction velocity in the latter part of this year as interest rates and credit conditions hopefully stabilize.

In the interim, pricing for most real estate assets continue to adjust as buyers and sellers try to find equilibrium that they need to transact business. With our nearly 30-year track record of creating substantial shareholder value, Colliers is poised for continued success. Anticipating a rise in transaction revenue later this year, and supported by a very strong pipeline for new growth prospects, we are more excited than ever about the future.

And with that, let me turn things over to Chris McLaren to discuss some highlights on services side. Following that, Christian will provide his financial report, and then we'll open things up for questions. Chris?

[Chris McLaren, executive]

Thank you, Jay, and good morning. I'm proud of the results that Colliers Real Estate Services delivered in the fourth quarter and the full year. Despite industry-wide headwinds, we have become more resilient than ever, demonstrating the strengths of our highly diversified professional services platform by both service line and by geography.

Our Outsourcing & Advisory business saw a 10% revenue growth in the fourth quarter and for the full year, has grown 11%, led by engineering, project management and property management.

Our engineering and project management pipelines are filled with a balanced mix of public and private sector clients that want to work with us because of our expertise and ability to provide integrated solutions.

Additionally, the growth of our property management business has been driven by strong portfolio retention and expansion within our existing client base as well as the addition of new clients due to receiverships in key markets. We expect the growth rate for these high-value services to remain resilient over the long term.

As mentioned, transaction volumes remained subdued during the quarter because of interest rate volatility, tighter lending standards and pricing mismatch between real estate buyers and sellers. However, with expectations of interest rates stabilizing, we have greater confidence that transaction velocity will improve in the second half of this year.

Importantly, during the slowdown, we have continued to invest in our business, filling gaps, taking market share and top grading leadership. Having been with Colliers for 35 years, I'm especially proud of our enterprising professionals and our culture, the bedrock of our success. I'm pleased to share that we have been named among the world's top companies for women by Forbes, in addition to our inclusion on Forbes World's Best Employers list.

I'll now turn over the call to Christian to provide more details on our financials.

[Christian Mayer, executive]

Thank you, Chris, and good morning. I'll provide some additional commentary on our consolidated results, our financial outlook for 2024 and our balance sheet. Please note that all references to revenue growth made on this call are expressed in local currency, and that the non-GAAP measures discussed here today are as defined in the materials accompanying this call.

In the fourth quarter, revenues were $1.2 billion, flat when compared to the same quarter of last year and in line with our expectations for the quarter. Our recurring Outsourcing & Advisory and Investment Management service lines each reported robust revenue growth, predominantly internally generated.

Leasing revenue declined modestly across all asset classes. Capital Markets revenue declined 16% in its seasonally strongest quarter, on top of a 43% decline reported in Q4 of last year, with transaction sentiment continuing to be impacted by interest rate volatility and availability of credit.

On an overall basis, our internal revenues declined 2%.

Consolidated adjusted EBITDA for the fourth quarter was $198 million, down 2% relative to the prior year with margins at 16.1% versus 16.6% in the prior year quarter. The margin reduction was attributable primarily to service mix, with a decline in higher margin capital markets revenues not fully offset by our ongoing cost control efforts. We achieved cost savings of $28 million during the fourth quarter and $94 million for the full year.

We have extended our cost control efforts into 2024 to match the duration of the expected transactional revenue downturn, but the beneficial year-over-year impact of this has been largely realized. Our initial financial outlook for 2024 reflects our best information given the ongoing challenges in transaction market conditions. For the first half of the year, we expect capital markets and leasing transaction volumes to be roughly flat to 2023.

In the second half, we anticipate year-over-year increase in activity, particularly in Capital Markets, coinciding our expectations of stabilization and interest rates and an improvement in credit conditions.

In our recurring service lines, we are expecting mid- to high single-digit revenue growth. Investment management fundraising for 2023 totaled $3 billion, given the difficult market backdrop. We continue to see strong interest in our alternative investing strategies, which we expect will accelerate fundraising for 2024 to between $5 billion and $8 billion.

Our adjusted EBITDA growth is expected to outpace revenue growth as we gain operating leverage from the capital markets recovery as well as the benefit of additional assets under management in our higher-margin investment management operations. Adjusted earnings per share is expected to exceed EBITDA growth as interest expense starts to moderate from both debt paydown and lower floating rates as well as a reduction in the nonpetroling interest share of earnings as our fully owned transactional operations rebound.

Turning to our balance sheet. Our financial leverage ratio, defined as net debt to pro forma adjusted EBITDA was 2.2x at the end of 2023. For 2024, we expect leverage to rise modestly in the first half due to seasonal working capital usage then to decline to between 1.5 and 2x by the end of the year, assuming no significant acquisitions.

That concludes my prepared remarks. I would now like to open the call for questions. Operator, can you please open the line?

[Operator]

[Operator Instructions]

And your first question will be from Stephen MacLeod at BMO Capital Markets.

[Stephen MacLeod, analyst]

Just wanted to circle around on a couple of things. Just with respect to the outlook, you reiterated confidence in a return to transaction velocity in H2. And just wondering if you can give a little bit of color about sort of what your clients and customers are telling you about that to give you strong visibility into that outlook?

[Chris McLaren, executive]

Yes, sure, Steve. It's Chris here. So I think the first thing is we've had 18 months of a really challenging period for Capital Markets. We're starting to see some optimism of sentiment rising in real estate investment. And clients are shifting from having discussions to making decisions as there's a clear outlook to interest rates midyear.

So we're seeing assets come to market with more realistic valuations as well. So what we're seeing, I think, going forward is a gradual return and then picking up velocity in the second half of the year.

[Stephen MacLeod, analyst]

Okay. That's great. And are there any specific regional areas or asset classes that are more robust in terms of activity than others at this point?

[Chris McLaren, executive]

Yes. I'd say investors are looking at the industrial and logistics. You still have some strong fundamentals behind that with e-commerce and onshoring. There is a low vacancy. However, it has crept up from, say, 2% to 4% to 5% in most markets, but there's still a thesis there behind industrial and logistics. So there is demand around the world for that product. I'd also say in the living sector, student housing, build-to-rent senior housing because of the demographics and shortage of housing.

And then thirdly, I'd say primary office where tenants are looking to flight to quality. They're looking for central business district locations, great transit, great amenities, ESG credentials. So those are the things that are in demand in the marketplace today.

[Stephen MacLeod, analyst]

Great. And then just turning to the high-value O&A business and outlook. Just wondering, I mean, Chris, you gave a little bit of color on the prepared remarks around like project management, portfolio management -- or sort of project management, engineering and property management. Just curious if you can give maybe by each subsector within Outsourcing & Advisory sort of what you're seeing and how you expect that to evolve through the year and where you're seeing notable pockets of strength?

[Chris McLaren, executive]

Sure. So let's talk about project management first. We're seeing some strength in a very strong business in Canada. India is a market leader there. And India has got a GDP of about 6.5%. So we're taking advantage of that and doing a lot of new corporate campuses there.

We're seeing strength in our Dutch business and our Polish business from a project management standpoint. Property management across the board. We're picking up, extending the portfolio from our existing clients, winning new clients. So I think that, that's universal around the world that property management is going well. And then on the engineering side of things, we've got some long-term contracts, and there's a great book of business going forward, and it's balanced between private and public sectors.

[Operator]

Next question will be from Daryl Young at Stifel.

[Daryl Young, analyst]

Jay, just in your opening remarks, you made reference to a robust pipeline of new opportunities. And I'm just wondering if you can give a bit more color around this.

And I think in the past, around the 2025 plan, you mentioned there might be additional verticals needed later in the plan to achieve it. So I'm just kind of trying to bridge the robust pipeline of new opportunities with this outlook and the 2025 plan.

[Jay Hennick, executive]

Yes. So it's a great question. And for those long-term shareholders of our company, they'll know that acquisition growth is a key part of our overall growth strategy.

We have a full pipeline of opportunities right now, probably fuller than we've had in a long time. They are, however, in line with our existing platforms, but they are bigger. They're more diverse geographically. They fill some significant gaps. There's lots of leverage to be generated from them. We don't -- they're not at a point where we've tied anything down.

But as you would know, Daryl, it takes a long time to build relationships. We look for specific targets that we can partner with the operating management team, particularly in markets where we see huge growth opportunities. So we're very excited about many things that we've got on our plate right now, and we're hoping to be able to convert those over the next 12 or 18 months.

But they, for the most part, would all be in existing areas, mostly recurring. As I think about it, most of them are recurring -- the lion's share is recurring. There's lots of blocking and tackling, existing business units, filling gaps across the world in base parts of our business and brokerage in Capital Markets and a variety of other things. But for the lion's share of our opportunities, as I think through the pipeline, it's recurring revenue segments virtually across the board.

[Daryl Young, analyst]

Okay. Great. That's great color. And then flipping to the Capital Markets side, the results were, I'd say, impressive in my mind, particularly against some of the industry data that we were looking at. Could you maybe just give us a bit of color on where those market share wins are coming from? And is it a function of the people adds you've done across the last few years of the downturn? Or is it asset classes or anything there?

[Chris McLaren, executive]

Yes, I can give you one example. We've had a record year in terms of recruiting in the U.S. The Colliers brand is really resonating in the marketplace. And if you look at the RCA volumes as an example, they're down 41% in the U.S., and our sales is only down 25%. So that would show that we're having market share there.

[Daryl Young, analyst]

Got you. Okay. And then one last one, just around EMEA and the margin trends there. A nice recovery here in Q4 versus the first 9 months of the year. Is that something you expect to hold across the year? And is that sort of structural costs that have come out of that platform?

[Christian Mayer, executive]

Yes, Daryl, I mean, as you know, from history, Q4 is a very strong quarter in EMEA, and a lot of transactional activity happens in Q4. And historically, the lion's share of EBITDA is generated in Q4. That was, again, the trend this year. I do expect, going forward, we will have a stronger EBITDA performance throughout the year, given the expected rebound in activity levels as well as cost actions that have been taken in that region to adjust to those lower activity levels.

[Chris McLaren, executive]

The other thing I can add is that Germany and the Nordics were specifically a challenging year last year in terms of Capital Markets. It's highly transactional for us, and it's something we're working on in terms of balancing the business. Some of those markets in the cities in Germany were down 80%. So we expect some activity to come back and it won't be as extreme as last year. So definitely improving in Europe in '24.

[Jay Hennick, executive]

Well, it has to do with, yes, with the geopolitical circumstances, particularly around Germany and some of the other markets in Europe. But we are seeing some white shoots in those markets right now.

[Chris McLaren, executive]

Green shoots, yes.

[Jay Hennick, executive]

Green shoots.

[Operator]

Next question will be from Jimmy Shan at RBC Capital Markets.

[Khing Shan, analyst]

So first, maybe just a couple of clarification on the guidance. The $5 billion to $8 billion of additional AUM in '24, I'm assuming that's a fee-paying AUM, and then that's one. And the second one would be, would there be any M&A baked into your guidance?

[Christian Mayer, executive]

Okay. So Jimmy, the first question, the fee-paying AUM, the fundraising that we will do is predominantly in closed-end funds, and that will generate fees on the capital that's committed. So we'll be predominantly fee paying capital.

And secondly, there are no new acquisitions baked into our guidance, our outlook for 2024. There's a small amount of lap over from acquisitions completed in '23, that's in the outlook, but nothing new.

[Khing Shan, analyst]

Okay. Great. And then just on the Investment Management business, infrastructure and credit seem to be where LPs want to allocate dollars. And when I look at your AUM pie chart, you do have 25% exposure to those 2 spaces. I'm just kind of curious as to how you're looking to grow these 2 strategies, if you are looking to grow them at all? And whether you're looking to grow organically or maybe add a new platform in the pipeline -- the healthy pipeline that you made reference to earlier?

[Jay Hennick, executive]

Well, as we have historically, we've shown strong internal growth, particularly in investment Management. And infrastructure alternatives have been key parts of our growth. We have a small credit business that we inherited as part of one of the platform acquisitions. And so that has grown very nicely for that platform, but we'd like to add credit to our overall family.

It's a key component of our longer-term strategy. Number one, there's tremendous synergies between our existing business and having a credit platform. So we're actively looking to add credit in a more significant way, primarily through acquisition. But if no acquisition comes through, we'll continue to grow our credit -- our existing credit business, which is operated by an exceptional group of professionals and has some very interesting opportunities to accelerate its growth on its own. But when you look at the pie chart, it is still a small piece of our overall AUM.

[Khing Shan, analyst]

Great. And then sorry, just a follow-up in the pipeline of the different recurring businesses that you're looking at, how are the multiples? Or like how is valuation? We've seen fairly big, healthy multiples in the private market for Investment Management platforms. How are those multiples looking today?

[Jay Hennick, executive]

Well, that's a great question. The multiples have gone up significantly, especially for the quality assets that we're looking at. And it's not just in the IM space, I think it's in professional services as well. One of the things that I think people overlook with Colliers is that we are very much a highly diversified global professional services business, with an engineering business that is sort of $1 billion.

And if you look at the peer set in that space, our margins are as good or better. We do have a global growth platform. There's multiple opportunities to grow that business, and those companies trade at much higher valuations, obviously, than Colliers does.

And so we have an environment where valuations have gone up, but the reverse is that the types of deals that we are looking for are partnership deals, and they bring with them strong leadership teams that have stronger internal growth characteristics.

And there are many, and they are global. And so as many people know that have followed our story for many years, we've created value one step at a time. And we continue to think that there's exceptional opportunities for us to continue to add value to our business, and probably reposition our company in some way to one that is much more highly diversified, high value, more recurring revenue, global in nature.

And it's nice to see some of the peers in the traditional business add -- start to add engineering to their mix of business as well. So there's lots of those kinds of factors that are swirling around, which are -- we consider to be very positive to our longer-term strategy, which we've outlined in our 5-year plan among others.

[Operator]

Next question will be from Himanshu Gupta at Scotiabank.

[Himanshu Gupta, analyst]

So my question is on the leasing revenue. How has your outlook for leasing revenue changed compared to the last 3 months? I mean is leasing turning out to be much weaker or slower compared to what you thought, say, 3 months ago?

[Christian Mayer, executive]

So Himanshu, I'll try to answer that, and Chris, maybe you can jump through. But our leasing was down 5% or 6% in the fourth quarter of 2023. And looking ahead, we expect leasing to be probably flat in the beginning of 2024 and maybe up slightly for the full year. So it's going to be steady.

It has been rough, relatively steady, but we're not expecting any strong rebound in that particular service line in the near future.

[Chris McLaren, executive]

And having a global business, there are going to be bright spots. If you look at Canada, we were up 5%; U.K., 11%; India, 11%; and LatAm, 27%. Leases come up every 3, 5, 7 years. It's a regular business. People want to transact. There is the desire to upgrade and move into top quality buildings to make sure that employees want to be attracted to coming into the office. So as Christian said, we're looking at middle single-digit growth.

[Himanshu Gupta, analyst]

And maybe a follow-up. Your European leasing was positive in Q4. What led to that like positive growth there?

[Christian Mayer, executive]

Can you repeat that question, Himanshu?

[Himanshu Gupta, analyst]

Yes. So if I look at the leasing revenue by region, so if I see your Americas and Asia were down, but Europe was actually up on year-over-year basis. So just wondering, is there anything which is driving European leasing revenues to be higher?

[Christian Mayer, executive]

Yes. I can't think of anything in particular in Europe, Chris, unless...

[Chris McLaren, executive]

No, not particularly in Europe. The one thing that -- over the last couple of years, that industrial leasing has become stronger for us, pre-pandemic. It was probably at around 20% to 25%, and now it's up to 40% of the leasing revenue. So you're seeing higher rents in industrial and logistics. So that's translating into higher fees. And then also, there's been such a great demand for retailers, the e-commerce and the onshoring that it's been quite a successful service line for us.

[Himanshu Gupta, analyst]

Okay. And maybe just last question on Investment Management, IM. Was there any fundraising done this quarter? Or was there any -- and was that offset any redemptions this quarter?

[Christian Mayer, executive]

Yes. Himanshu, we did raise capital in the fourth quarter as we expected to do, around $750 million in the fourth quarter. And we also had some modest reduction activity in the fourth quarter as well.

[Himanshu Gupta, analyst]

Got it. Okay. And maybe just last one. The AUM expected growth of $5 billion to $8 billion, is it going to be first half-driven or second half-driven? Any visibility there?

[Christian Mayer, executive]

It should be across the full year. And just to clarify, the $5 billion to $8 billion is the fundraising we expect for the year. So AUM growth will be similar to or higher than that number because AUM includes leverage on capital deployed.

[Operator]

Next question will be from Stephen Sheldon at William Blair.

[Unknown Analyst]

You have Matt [indiscernible] on for Stephen Sheldon. What can you share about your overall producer headcount in both Capital Markets and leasing? And how do you feel about your positioning when volumes start to improve?

[Christian Mayer, executive]

Yes. I don't think we're going to share the exact numbers on headcount, but I can tell you that -- and then Chris mentioned this, that we have a stronger headcount than ever, particularly in our U.S. business, where we've had significant recruiting success over the past 18 months.

I think those trends are strongest in the U.S., but are also true across our operations around the world.

[Chris McLaren, executive]

We have a global initiative to increase the market share in Capital Markets around the world. So we are out strategically looking at top talent in all regions. But I would say that there has been stronger [ delinquencies ] in the U.S., which is the biggest market and the biggest market share opportunity for us to grow.

[Unknown Analyst]

Got it. That's helpful. And then how does the current lending environment compare to what you were seeing towards the end of last year? Just curious how things have trended with respect to the lending environment over the near term.

[Jay Hennick, executive]

The lending environment is not really clear because you've got different lenders now and new lenders entering the marketplace. For example, there's a lot of private capital entering the marketplace. You've got smaller banks that are under pressure from regulators. But I would say, generally speaking, the fact that interest rates have -- going into 2023, there was no clarity on where the rates might go.

I think there's a general view now that the rates have topped out and might start coming down, which creates more certainty in the lending market throughout. The other factor around the lending market generally is that those that are under pressure are going to start to take action, whereas in the past, they were delaying their action.

So that creates a more transaction activity, obviously for us because people are encouraged to transact. And so I think with clarity -- or more clarity around rates and the hope that rates might come down a bit. We're in an election year, we'll see what happens. But with that happening with more clarity that rates might come down more than would go up with banks being more active about dealing with loans that are under some duress. All of that should lend to more capital markets activity towards the middle to the end of this year, number one.

And fortunately, for Colliers, we invested very heavily in building a very significant debt capital practice where we have some 150 to 175 debt placement professionals across the U.S., in particular. And they are very busy meeting with clients and discussing various financing options that we hope will translate into transactions, whether they are capital transactions on the sale of a business property or the refinancing of a property or both.

So we're quite excited about how quickly this can turn once there's certainty around debt. But at this point, there's positive signs, but we're not seeing significant momentum just yet.

[Unknown Analyst]

Got it. Very helpful color, Jay. And then lastly, just wanted to circle back on leasing. What are you seeing in terms of lease duration for office? And then more broadly, just curious if there are any signs that tenants are becoming more comfortable signing longer-term lease commitments?

[Chris McLaren, executive]

I think most occupiers tenants are looking for flexibility, but it is market-driven. If you've got a market that has a low vacancy of 1%, 2%, it's really the landlord that's going to determine the lease length. But I think we're still looking at traditional 3-, 5-, 7-, 10-year leases, but it's really going to be market-dependent and asset cost-dependent.

[Operator]

Next question will be from [indiscernible] at Wolfe Research.

[Unknown Analyst]

Just on the Investment Management side. The FP AUM declined slightly in Q4. You said there were some redemptions in the quarter, but was the AUM decline driven by outflows or valuation marks?

[Christian Mayer, executive]

there were some modest valuation marks taken as well, Dave, as well as some redemption activity, but very modest.

[Unknown Analyst]

Just a quick follow-up. What are the outflows from the traditional real estate funds or alternatives?

[Christian Mayer, executive]

The traditional funds.

[Operator]

Next question will be from Frederic Bastien at Raymond James.

[Frederic Bastien, analyst]

Guys, your margins in the Americas region held up quite nicely in the back half of the year, which really speaks to the solid work you did rightsizing your cost structure. How should we think about the margin profile evolving over the course of 2024 as you turn your focus on growth again and really start loosening the belt?

[Christian Mayer, executive]

Frederic, that's a good question. We've taken, particularly in the Americas, very aggressive cost control actions through 2023. And as we look ahead, we've also taken action to -- on recruiting, which has been a cost that we borne through this period. But as we look ahead, we expect obviously revenues to grow in the Americas, both on the Outsourcing business as well as in Capital Markets and to a lesser extent, leasing.

Margins will improve somewhat, but we do have some variable costs coming back into the business and also some incentive compensation that will come back into the business, so expecting a modest margin improvement in 2024 across the Americas.

[Jay Hennick, executive]

The only other thing I'd add to that is any acquisition growth, particularly in the recurring segments of our business, would have higher margins naturally. So the mix might change.

[Christian Mayer, executive]

The mix might change. Yes.

[Frederic Bastien, analyst]

Right. No, no, correct. I was just more curious about Capital Markets and leasing, that type of the brokerage business, but you provided some great color here. That's all I have. It looks like looks obviously positive outlook going forward. It's nice to see and good luck on the year.

[Operator]

[Operator Instructions] And your next question will be from Maxim Sytchev at National Bank.

[Maxim Sytchev, analyst]

Jay, Christian, I was -- if you don't mind, maybe talking a little bit about some cross-selling traction/successes now that you have, obviously, a bigger portion coming from engineering and outsourcing stresses, and they are a bigger part of the overall portfolio. Just maybe any KPIs you can share with us, it would be helpful.

[Jay Hennick, executive]

There's cross-selling all over the place. As we get bigger, the actual examples are smaller in dollar value, but very significant cross-selling between our engineering segments and our real estate segments because we're really -- in most of our engineering, particularly around property level.

We're helping developers set the land up for zoning, putting in the necessary support services so that our developer clients can build houses, can build high rises and so on. And so it gives us a great opportunity to stay longer with the existing client. That's one -- that's just one example.

The other example that just keeps continuing to bear fruit is from a project management standpoint, when our developer clients want to build a multifamily building or an office building, not happening as much, particularly in North America, but there's lots of medical office. There's lots of seniors. There's lots of other infrastructure assets.

They need third-party project management firms to manage the construction project on behalf of the owner to ensure that the costs are in accordance with the budget. And if not, there's immediate action taken. We've enjoyed some great cross-selling opportunities between our project management clients and our developer clients in areas such as that.

And we think it's going to continue to accelerate because construction is becoming much more costly, much more sophisticated. There's a lot of value engineering that's happening. So the partnership between an exceptional project manager and a developer becomes more important than ever.

So as Colliers continues to evolve as an organization, our philosophy is to move upmarket and to be a more valued partner to our clients that are either developing and/or renovating and/or upgrading their buildings.

The same thing applies with ESG and the initiatives that we have around ESG. And somebody has to analyze the building and determine how to bring the building up to a better standard from an ESG standpoint or as Chris McLaren had mentioned earlier, to be more attractive as an office building, for example, to leasing clients.

Well, once that determination has been made and capital has been allocated, somebody has to do the work. Somebody has to estimate what that has -- what happens. Somebody has to manage the construction project.

Generally, there's a long tenure to that. It could be a 5-year construction project, it could be a 3.5-year construction project or a renovation project of 2 years. So all of these services that Colliers has entered over the past 5 years have all been additive from a standpoint of recurring revenue, obviously.

But I think your question is an excellent one because what it doesn't -- what we really haven't articulated as I think about it, is the great synergies that happen between the various component parts of what we do for clients on the field. And so that's bearing some exceptional fruit for us virtually around the world.

[Chris McLaren, executive]

Just to add to that, Colliers has a culture of collaboration. I can give you a benchmark. Within the U.S., 20% of the revenues come from collaboration and cross-selling.

[Maxim Sytchev, analyst]

Okay. Is there a figure that you think you'd like to target over time? Like obviously, I understand you'll have to do work for kind of external clients. But can the 20% become 30% in 10 years? Or how should we think about this?

[Chris McLaren, executive]

I think it's something that we're always working on, taking a holistic approach with our clients. So selling multiple service lines and what we call as a sticky client, if you can get 4 or 5 different service lines. So it's constantly part of what we're trying to offer to our clients. And 20% is a great benchmark. And if we can improve that, so be it.

[Maxim Sytchev, analyst]

Excellent. That's very helpful. And then just one last question in terms of sort of the discount interest rates, and I'm not trying to sort of belabor it, but when you kind of think about sort of the back half resumption on the transactional set of things, are you looking potentially, I don't like the dot plot and assuming 5 rig cuts that are necessary to restart the transaction velocity, do you mind maybe providing a bit of kind of a range of potential outcomes that you are imputing into the guidance? Or maybe it's a little less mechanistic from that perspective? Just maybe any color there would be super helpful.

[Christian Mayer, executive]

Yes, Max, we're not quite that scientific about it. Obviously, we can't control what the Fed is going to do next month or 3 months from now. But certainly, we gauge market sentiment. We have operators around the world that are talking to clients every day. And as Chris mentioned in his comments, these conversations are trending more positive. We're more engaged than ever with clients and looking at transactions that they want to complete, both on the buy side and on the sell side.

So -- and it has been an 18-month period of quiet in the market. So there is pent-up demand, and we're seeing it. And that gives us, I think, a reasonable amount of visibility here into the back half of the year and a resumption of some level of activity. I think it's a relatively modest resumption, and that will hopefully be the catalyst for a more significant rebound in activity in 2025.

[Operator]

And at this time, Mr. Hennick, we have no other questions registered. Please proceed.

[Jay Hennick, executive]

Well, thank you, everyone, for joining us on this fourth quarter conference call. We look forward to reporting hopefully positive results in the first quarter and convening another call like this. So thank you for participating, and we'll speak to you soon.

[Operator]

Ladies and gentlemen, this does indeed conclude the conference call. Thank you for your participation, and have a nice day.