Jones Lang LaSalle 3Q15 Earnings Call Notes

High investor demand continued to compress yields

“High investor demand for real estate continued to compress yields or cap rates for core office assets in primary markets. Brussels, Paris, Stockholm and Sydney, all saw yields reduce by 25 basis points in the quarter”

Corporate occupiers are generally optimistic about near term prospects

“Worldwide, corporate occupiers are generally optimistic about near term prospects and many are actively planning for growth.”

Forecasting investment volumes at $750B for 2015

” For 2015, we are maintaining our full year forecast for overall investment market volumes at $750 billion and the market could surpass that to set new records.”

Leasing demand is increasingly being driven by growth plans

“Demand is increasingly being driven by growth plans rather than cost containment consolidation and just lease renewals. The deal pipeline is full, particularly in the U.S. And what had previously been a technology-led story, 2016 will see demand across a much broader spectrum of industry sectors, finance, professional services and insurance, just a few examples.’

CRE activity has remained steady in China’s tier one cities

“Let me make a few comments about China since it’s captured a lot of headlines recently. Despite currency and stock market volatility, commercial real estate activity has remained steady in the country’s tier one cities.”

The shift from a manufacturing to consumer economy plays to our strengths

“In addition, the shift from a manufacturing to a consumer and services-based economy plays to our strength in the service sector and our strength in tier one cities.”

The shift is producing challenges in tier 2 and 3 cities

“The shift in growth to services is producing some challenges in tier 2 and more so tier 3 cities. ”

Our view on China is that the government overshot slowing, and is now restimulating

“Our view on China is that the government overshot as it worked to slow the country’s economy in 2013-14 and then responded by re-stimulating it this year. We see the effects of those moves kicking in next year and finally with 2016 GDP growth projected to be near 6%”

In Europe the business environment is much more intense than overall GDP would suggest

“both Europe as a whole and France have been performing particularly well, even in an environment where economic growth is 1%, tops. And so it didn’t ought to be but it is. And I think what’s going on in Europe is that actually within the business environment and in particular within the real estate environment, activity is actually much more intense than the overall GDP numbers would suggest.”

The capital markets picture in Europe has been anomalous relative to GDP because it’s viewed as a safe haven for international capital

“The capital markets picture which was I think the focus of your question, again has been anomalous to what you might expect from the market, the overall economic growth picture, again, since 2010. And the reason is that the European environment as a whole and in particular the major gateway cities, are seen as being safe havens for international capital and offering solid returns and generally deep liquid markets should investors wish to sell their assets at sometime in the future. And against that background of attractive investment markets we’ve seen then this global upwelling of investment of equity capital trying to find its way into quality real estate. So you’ve got a huge volume of equity, adequate debt availability at sensible levels of underwriting against a relatively limited supply of quality space in the major European cities. And the two together have just driven these year-after-year record levels of activity.”

There’s so much capital that is keen to invest and it’s not skittish. There’s no signs that this is slowing up

“It’s just that there is so much capital that still is keen to invest and it’s not skittish. Let’s call the international geopolitical issues and security issues, some of the noise around what was in the Chinese domestic markets, do not seem to have impacted this tremendous, people call it a wall of equity, this tremendous level of demand for capital. And if you look at the inflows into private equity this year, by quarter in Q2 they rose from $80 billion last year to something like $130 billion this year. And that money hasn’t yet been put to work. So that will be going into the markets in 2016 and beyond. Then again, nothing that suggests that this is about to — I mean we are watching it very carefully, obviously. We’re watching the velocity of transactions, we’re watching the speed of transactions and the number of bidders. But nothing yet suggests that any of this is slowing up.”

The large sums of money are looking for major assets in major cities

“the real equity, the real large sums have been looking for major assets in major cities. And that’s our sweet spot… So it’s about concentration of large assets and quality buildings”

There’s a low level of supply compared to demand

“So the level of development work, speculative or built for purpose, is very low by historical and indeed global standards. So against that relatively low level of supply, you’ve got increasing levels of demand as companies clearly are ramping up their expansion plans. And so that suggests that there will be sustained rental increases across large swaths of the U.S. office market”