Jones Lang LaSalle 2Q15 Earnings Call Notes

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Confidence in CRE is building leading to strong capital and leasing markets

“There are three key messages here. First, momentum and confidence are continuing to build in commercial real estate markets worldwide. Second, capital markets activity is sustained and growing globally. And, thirdly, growth is now increasingly heading corporate agendas so leasing market demand fundamentals strengthened further in the quarter along with rental rates. And globally Q2 leasing market growth, it matched investment sales volume growth for the first time in this current cycle.”

Investment demand pushed cap rates to new lows

“Investment demand for real estate continued to reduce yields, cap rates to new lows, compressing rather surprisingly at their fastest pace in five years. Investor demand pushed yields down 25 basis points in London and 10 to 20 basis point compression was seen in North American gateway cities. ‘”

Leasing highlights include 1.1m square foot lease for Amazon

“Second quarter leasing highlights included completing a 1.1 million square foot industrial lease for in New Jersey; representing AXA Belgium on 106,000 square foot office lease in Brussels; and securing 440,000 square feet of new Class A space in Shanghai’s Central Business District for WPP Group, the largest -ever CBD leasing transaction in Shanghai.”

US transaction activity is broadening out into smaller cities

“Across the U.S. transaction activity is spreading from — the intensity of transaction activity is increasing across the broad sweep of smaller and medium sized markets. We are not typically in the smaller cities across the U.S., but if you go down the list of the significant business centers, Boston, Chicago, Los Angeles, Dallas, Silicon Valley, Atlanta, Charlotte, we are in all of those significant places where still, in value terms, the bulk of business gets done and certainly those are the cities where the major investors are present and the major corporate clients are also present and active.”

Harder to acquire teams in this part of the cycle because they’re doing so well in their own businesses they don’t want to leave

“I have to say at this point in the cycle it gets tougher and if anything, the numbers are coming off slightly year-on-year because we’re seeing people in their own existing businesses doing well, transacting well with good pipelines. And so it becomes harder to draw them across to our business.”

Technology is impacting all businesses and it’s certainly happening now in real estate

“If you go back to Ford’s earnings statements yesterday, there’s a traditional industry where their CEO talked about a sea change and the disruptive influence that technology is having on the good old traditional automotive sector. Well, that same phenomenon is happening across all businesses and it’s certainly happening now in real estate, arguably sort of later than many other sectors.”

Institutional investors want to put more and more money into real estate

“So the capital raise is across Australia, Japan, broader Asia, Continental Europe, Britain, and the U.S. So just going down the list in my mind, that’s all of our geographies. And so it’s a broad — and it’s part of this broad trend we’re seeing of institutional investors wanting to put money and then more money and more money into real estate.”

Demand is ramping for leasing which is pushing rents higher, which will push development in 16, 17, 18

“the general trend for leasing across the U.S. is, demand is ramping up and this would actually be a very solid global comment too, certainly for the mature markets. The demand is ramping up. The supply of new space in the office market is relatively restricted and that would be certainly true across Europe and the U.S. So against that rents are tending to rise and that is in turn beginning to drive more development and delivery of more space in ’16, ’17, and ’18. So that virtuous circle is up [away] [ph] and it’s tending to benefit the landlord side of the equation.”

As traditional companies hire technologists, technologists are pushing those companies to adopt more forward looking space plans

“we’re certainly seeing the trend to more open space for, call it Google staff space, if you like. Not just in the traditional tech sector but because there are more and more technologists and IT people being hired into traditional corporations, think banks, motor companies, real estate services firms. Those people are tending to want that sort of forward-looking space inside those traditional organizations as well. And that then spreads to the broader working population. So we are seeing that trend. To say it’s at the margin is not to marginalize it, but it’s not 60% of all office space is being subject to that trend. There is still a very large, the very large majority of office space is more traditional style.”