Jones Lang LaSalle 1Q16 Earnings Call Notes

Colin Dyer

The first quarter has proven to be a pause not a trend

“We are particularly pleased with these results because they came in a market environment which earlier in the quarter was anxious and unsettled. Financial market volatility, depressed lower prices and concerns about both the Chinese economy and the approaching Brexit vote in the UK, caused investors to hesitate and corporate tenants to hold back expansion and relocation plans. But as we predicted on our February call, this to be a pause, not a trend.”

Institutions continue to view real estate as an attractive asset class

“Institutional investors continue to view real estate as an attractive asset class. So new equity capital continues to be allocated to real estate even while existing commitments remain unspent. Corporate tenants are more confident than they were at the start of the year and resulting demand against the constraints supply is forcing rents higher on a global scale as you will see from our slides.”

This has been a different sort of cycle

“with nearly seven years into this recovery cycle, it’s been an interestingly different one from previous ones in the sense that it has been slow and hesitant and it hasn’t been accompanied by the usual interest rate raises that you see as a cycle matures. Indeed in many countries, the interest rates have been going the other way and in the U.S. the increases have been very hesitant. ”

The usual bottlenecks are emerging in some areas

“So it’s been a seven year recovery process but it’s been slow and gentle. And if you look around, in our markets, and indeed more broadly across business markets, there’s been, there is very good sign of the usual bottlenecks that emerge in cycles, in production capacity or shipping capacity we need in our markets, a scarcity of space. And whilst we see a slow increase in the overall global levels of occupancy, it is very gradual indicating that supply and demand are remaining broadly in line.”

There’s nothing out there that says that this cycle is about to turn

“So there’s nothing really out there, which at this point says that even though we are in the fourth quarter here, there is anything imminent that suggests that this cycle is about to win. That’s partly why we were so clear in quarter one by saying that the quarter one developments, the first half of the first quarter if you like, were a pause and not a trend. Now I think the progress since that mid-February low point of markets as a whole, and indeed real estate markets, has been solid and sort of bears out that prediction.”

General level of corporate confidence is high

“the general level of corporate confidence as you can see from business surveys globally is high, corporates are well funded, they still retain a little cash in the balance sheet, they have adequate access to relatively cheap debt globally, and the general center of corporate CEOs may deal with and generally – the general corporate clients is positive. So there an expansion remote rather than contraction and rationalization, so that’s on the demand side broad brush that it’s the global situation. It’s not euphoric I said this earlier, which has been a steady, calm relatively conservative recovery certainly on the corporate side and people are investing – whether investing or doing it carefully.”

Don’t have a supply boom either

“On the supply side, particularly in offices there has been globally a restrained level of development, with the level of delivery if office stock is still below the 2007 and 2001 peak levels. And so you haven’t got a boom of supply hitting the markets and tending to depress pricing.”

Prices have been steady with some exceptions

“prices in general have been very steady across global investment sales markets I think we talked in the script about just a 10 to 20 basis point compression year-on-year. Where there has been declines, it’s been exceptional Russia, Sao Paulo and Rio in Brazil, and as you mentioned, some Tier 2 cities in China, what’s happening in China is that the growth in the service and retail sector which is the order of 12% is favoring of the larger Tier 1 cities so Shenzhen, Shanghai, Beijing, where we have seen good revenue growth. On the other hand places like Chongqing, Chengdu and Changyang, which are the more traditional industrial cities in the industry as you know not growing it’s even declining, they are having a harder time”