Jones Lang LaSalle 1Q14 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Positive trend for real estate markets

“Conditions in the global economy and in real estate markets continue to have broadly positive trend.”

Markets have turned a corner, shortage of A grade space

“While Leasing market activity measured by gross absorption remains flat, we think that many markets have turned a corner. Growing market optimism and evidence of increased occupier activity of a strong evidence of the shift. In the U.S. during the quarter, demand was more evenly distributed across markets, and shortages of grade A space are boosting occupancy in grade B space.”

Lots of appetite for CRE deals

“In the Capital Markets, we are maintaining our forecast for market volumes of $650 billion for the year and that’s a 15% increase. In addition, the momentum we see currently among investors combined with increasing numbers, large, single and portfolio assets on the market confirmed this expected growth. And the distinct improvement in occupier segment — sentiment, which we’ve recently seen is also feeding investment momentum.”

Forecasting mid single digit asset appreciation

“We are forecasting single-digit growth in capital values in most major office markets this year. This will largely be due to rental growth with yields remaining generally flat. The largest increases in values will be in Tokyo, New York, San Francisco and the city of London. And Madrid will bounce back stronly this year after several very slow years.”

Rent growth of 4% per year

“Rents on prime assets, currently growing by about 2% annually, are expected to increase to 4% a year by the end of 2014.”

Institutional investors forced to take more risk

“LaSalle Investment Management sees institutional investors continuing to allocate capital to commercial real estate throughout the year. With attractive deals becoming more and more difficult to find, however, investors are going to be accepting greater risk, low returns or some combination of the 2, as they pursue their investment goals.”

Demand broadening from just silicon valley

“the levels of demand are broadening out from the tech driven San Francisco, Silicon Valley, Austin initial burst of activity we saw. And we’re seeing now activity in Salt Lake City, Atlanta, Los Angeles growing across Asia. Korea had a strong Q1. Manila is also showing growth. And these have been pretty quiet markets for the last couple of years. And in Europe, we saw significant uptick of activity in Paris, which has been very muted for a while. London, continues to be strong and robust market.”

Leasing pipeline strong, pricing power firming

“there’s quite a lot of activity in the pipeline. The deal size is beginning to pick up again. We expect the fees, which haven’t slipped too far and on the tenant rep side, will continue to harden. And there’ll be more incentive attached to them as well.”

Foreign capital driving demand for properties in Southern Europe

“in the recovering Southern European countries, it’s been international capital over more risk-seeking times. It’s been private equity. We have been showing private equity around Spanish opportunities for the last 12, 18 months.”

Europeans are confident

“What the European corporates would say is that, you can point to Eastern Europe and you can point to the lack of reforming on European countries and you can point to some continued, certainly, levels of continued economic weakness. But basically European corporations are growing in confidence. They’re getting back to doing business. And they’re focusing on the positives rather than the negatives. And so, when you could put it all together, despite the thing you can worry about from the point of view of European corporate leaders, this is as good as a set of circumstances that they have been looking at around that business for, let’s say, since 2006, 2007, with positive growth everywhere. And none of the European countries, with the exception of Russia, possibly are in recession.”