Emma Giamartino
Chief Financial Officer at CBRE Group
Thanks, Bob.
Please turn to slide six for a review of Advisory Services results. This segment's net revenue fell 17% and SOP declined to 35% versus prior year's Q3. Across geographies, APAC showed the best relative performance with revenue up 3% led by continued strong growth in Japan. Revenue was weak across EMEA, declining 18%, slightly better than the Americas, where revenue fell 21%. The revenue decline was most pronounced in property sales, which decreased 38% with both buyers and sellers pausing amid the sharp and unexpected interest rate increases over the past 90 days. EMEA sales revenue saw the greatest decline at 47% while APAC sales revenue fell only 12%. In the Americas, property sales revenue dropped 41%. Ironically, compared with other major property types, office saw the least severe decline due to weak prior year comps and seller capitulation. Industrial sales were largely limited to properties under 300,000 square feet and multifamily sales were concentrated in core and core plus properties as investors focused on the highest quality properties to mitigate risk. Commercial mortgage origination revenue fell less than property sales, down 18%. The decline was tempered by our significant business with the GSEs, which have taken share amid the broader pullback in lending. Beyond capital markets, our leasing revenue declined by 16%, a few percentage points below what we had anticipated going into the quarter. Significant growth in several APAC countries was offset by lower revenue in both EMEA and the Americas. Economic uncertainty continues to delay occupier decision-making, particularly for large office and industrial deals. For example, leasing revenue declined by 23% in the US, but the number of leases completed was only down 10%. The remaining lines of business in our Advisory segment were relatively flat, with growth in both loan servicing and property management offsetting weaker valuations revenue, which is tied to sales and financing activity.
Please turn to slide seven as I discuss the GWS segment. GWS posted another strong quarter, with net revenue and SOP increasing by 14% and 15%, respectively. Both facilities management and project management generated mid-teens net revenue growth. Our business continues to benefit from our focus on industry sectors that allow us to meet the unique needs of our diversified client base. Growth year-to-date has been notable in three sectors: healthcare, due to our enhanced capabilities to meet client needs; energy, spurred by strong expansion with existing clients, along with growth in renewable energy; and industrial logistics, an industry that is increasingly embracing outsourcing in their manufacturing plants to reduce costs. We are also seeing continued strong revenue growth in our GWS local business, driven by a mix of new and existing clients. Investment in our US local business, which I discussed last quarter, resulted in several new wins and accelerated revenue growth. In addition, our Turner & Townsend project management business continues to outperform expectations, most notably through their expansion in the US. Our GWS pipeline reached a new record in the quarter, with a third of our pipeline coming from first-generation outsourcing clients, that is clients who have not previously outsourced their real estate operations. The growth in first-generation pursuits reflects corporations' increased interest in reducing occupancy costs among the uncertain economic environment. Our remaining pipeline is filled with occupiers that are looking to either expand their scope of services with CBRE or switch their service provider to CBRE because of our ability to provide more integrated global solutions. Margins improved slightly in Q3 due to strong revenue growth that offset the investments made earlier this year, allowing us to achieve operating leverage. We anticipate further margin expansion next quarter.
Now turn to slide eight for a discussion of the REI segment. Overall SOP totaled just $7 million, reflecting few US development asset sales and lower operating profit in our investment management business. Within investment management, the decline in operating profit was primarily driven by negative marks in our more than $330 million co-investment portfolio compared with positive marks last year, as well as lower incentive fees. AUM declined sequentially to $144 billion, primarily due to lower property valuations and negative foreign currency effects, which offset modest net inflows. While fundraising has decelerated materially across the sector, including for CBRE, investors remain keenly interested in higher target return strategies to take advantage of current market stress and dislocation, such as opportunistic secondaries and value-add real estate strategies. We have committed almost $200 million year-to-date in co-investment capital in support of these strategies. This is a record level of co-investment across our funds and a substantial increase in our commitment to higher return strategies. We have focused on follow-on funds with strong track records and led by experienced portfolio management teams.
Development results were below expectations due to deals slipping into 2024. Historically, we've covered the US development business's operating costs with project fees, and we expect this to be the case going forward. Our in-process portfolio was flat with last quarter as we added few new projects but also did not have any meaningful asset sales. Note that we have refined our development portfolio definition to better reflect projects that are actively under construction. The primary change is that the definition of in-process now only includes projects that have started construction, whereas the prior definition included projects that were under our control with construction expected to start within 12 months. The environment for harvesting development projects and recognizing the related gains has become increasingly challenging. The project sale process is progressing more slowly than we typically see, driven by increased caution from buyers. This has been elongating the sale process rather than impacting pricing. However, we are reaching a point where pricing will be impacted, and in that case, we will proactively decide to hold well-capitalized assets until market conditions improve. As Bob noted earlier, these circumstances, which put downward pressure on our business in the short run, create opportunities to secure assets that will lead to substantial future profits. Looking forward, we have continued to invest in development with more than $150 million committed year-to-date. These investments are focused on securing multifamily and industrial projects at a time of capital markets dislocation that we expect to deliver historically attractive returns.
Please turn to slide nine. As we've noted, the current environment is providing opportunities to deploy capital strategically. With respect to M&A, we continue to evaluate many opportunities across our lines of business. However, we are being disciplined about pricing and thorough in our due diligence. Just as the rise in interest rates and increased uncertainty impacts real estate transactions, it also affects M&A deals. We have passed on otherwise attractive deals where we could not close the gap in pricing with sellers. Our hurdle rates to achieve returns above our risk-adjusted cost of capital have increased along with interest rates. The seller pricing expectations, for the most part, have adjusted more slowly. In the meantime, we completed over $500 million of share repurchases during the quarter, bringing our year-to-date total to $630 million. Volatility during the third quarter allowed us to get close to our share repurchase target for the full year. I want to reiterate that while we are looking to take advantage of this period of investment opportunity, we remain highly disciplined around pricing, and we are fully committed to maintaining an investment-grade balance sheet with a leverage ratio below 2 turns.
Next, I'll briefly touch on cash flow and cost reductions. Full year free cash flow is tracking below our prior expectations, primarily due to lower earnings. In addition, several large uses of cash, mostly timing-related items such as cash compensation tied to last year's results, do not flex down with this year's lower earnings. As a result, these items are a headwind to free cash flow this year. As these timing impacts reverse next year, we anticipate a significant improvement in our 2024 free cash flow generation. We discussed earlier this year that we were prepared to cut costs further if the market environment deteriorated. That time has come, and we will be reducing costs across our lines of business. We have already targeted $150 million of reductions in our run rate operating costs, primarily focused on our transactional lines of business that have been most negatively impacted by the market downturn. We expect to provide more detail on the benefit of our cost savings actions when we provide 2024 guidance next quarter.
Turning to our outlook, as Bob noted earlier, we now expect core EPS for the full year to decline by mid-30%. Our expectations for double-digit revenue and SOP growth in our GWS segment are more than offset by capital markets driven SOP declines in Advisory and REI segments. Looking to next year, while the recovery of transaction activity, particularly in capital markets, will take longer than initially anticipated. We expect double-digit growth of our resilient and secularly favored lines of business, which combined have exceeded $1.5 billion of SOP on a trailing 12 month basis. In addition, we will continue to benefit from strategic deployment of capital and our cost-reduction initiatives.
Taking into account all of these circumstances, we believe this year will be the trough for our earnings and anticipate meaningful growth next year. However, our return to record earnings will likely be delayed a year relative to our earlier expectations.
With that, operator, we'll open the line for questions.
