Jones Lang LaSalle 1Q17 Earnings Call Notes

Christian Ulbrich – Jones Lang LaSalle, Inc.

I would say we have an ideal environment to invest in real estate

“That’s a long question. I’ll try to answer that. I would say overall the market is still very healthy. I mean we have an almost ideal environment to invest into real estate. Interest rates are incredibly low. The outlook for interest rates continue to be low. I mean when you look what happened to oil price over the last couple of days, they’re coming in again very much. So the outlook for interest rates will continue to be attractive from that end.

Now we saw that there was a bit of a hesitation with some investors at this point of the cycle. So it takes longer now to close deals than it did a year ago, but we think that is a healthy development because we rather want a healthy development which continues to be there for a couple of more years in this cycle than that things are going over the top.”

Very happy with business in China and India

“We were obviously very, very happy with our business in China and India. There was a lot of debate around how China will do, and whether they will be able to continue their growth momentum, and I think they have probably surprised a lot of people in the world, how they were coming in the first three months in their overall GDP performance. And, we can see it in our business; our activities in China are really, really strong, people are upbeat. And the same applies to India. I don’t know how closely you follow India, but they are really taking some important actions from the political side, and again that plays really well for the real estate sector in India.”

UK strong too

“The other one which certainly was a bit of a positive surprise, not to me personally I have to say, but let’s say to the wider perception, was the performance in the UK, because with all what’s going on in the UK, and you could have thought that the UK would slowdown in the real estate performance, but they didn’t. I mean we had a really strong start to the year and we hope that continues. Now we have the election coming up, let’s see whether that will slow it a little bit down. But overall, that was a bit of a positive surprise.”

Jones Lang LaSalle 4Q16 Earnings Call Notes

Christian Ulbrich

Brexit vote has created uncertainty for real estate portfolios

“It is too soon to know just how Brexit, the new U.S. administration and other global political uncertainties might affect our own business. Still, it is fair to say that the Brexit vote, in particular, hasn’t created an environment which encourages our clients to take long-term decisions around their real estate portfolios.”

Development in UK has been exceeding our most negative expectations

“As we have outlined, we believe that going forward the transaction volumes will stabilize in the UK on that lower level what we have seen in 2016. We have already quietly not replaced people who were leaving us and have reduced a little bit on the costs. So I don’t expect any significant need to have further reductions in that space in the UK going forward. Now we are staying very close to the situation in the UK, but though the development has been clearly exceeding our most negative expectations which we got for the Brexit but at the end of the day, we are very hopeful that pragmatism will take over and that things will play out fine for the UK going forward.”

Despite all the geopolitical turmoil, pricing for M&A is still very high

“You know what, I think despite all the geopolitical turmoil and other factors which would drive a bit of caution, pricing for M&A is still at the very high end of it and there isn’t really a sign that this is easing. Frankly, we are very focused going forward on integrating our 48 acquisitions we have done in the past. So we’re not overly concerned about the current price levels”

Investor sentiment remains positive for real estate

“Investor sentiment over the course of 2016 went through a bit of the cycle. We saw during the course of the year a bit of an increase in caution. So when you usually had six or eight really strong bidders for a building, it kind of went down to maybe two or three. But at the end of the year, November-December, was very strong again with a very intense competition, and the way we see generally starting, this trend is continuing. So, I think, as I alluded to in my earlier comments, the attractiveness of real estate in that current environment is still very, very high, and we see an increase in allocations and that will at the end just drive further investor sentiment. Now we have to watch a little bit the interest rate environment, but it is incredibly hard to predict. We may see a bit of an increase in the U.S., but we believe still only to an extent which will not change that underlying positive trend for real estate. And with regards to other currencies, I can see very little reasons why these interest rates in those currencies should increase significantly. So, going forward, we are still pretty positive about investor sentiment.”

Time to close is longer though

“Well, frankly, that is not really the case. Because people are slightly concerned about where we are in the cycle, they are taking really their time to come to their final decision, and in contrary to maybe previous years, people are not accepting to be pushed into a decision. They rather walk away from a deal. Now, as I said, we tend to have more than one bidder. That is okay, but the cycle – the time cycle of closing a deal is continued to be slightly longer than we have seen it in 2015 or 2014, and frankly we don’t expect that to change in 2017.”

Christie Kelly

Capital markets revenues down 20% y/y

“Capital Markets revenues for the fourth quarter declined by 20% year over year. Performance reflects the slowdown in investment sales activity and softer investor sentiment, particularly in the UK where market volumes were down 39%. Excluding the UK, Capital Markets performance was comparable to the exceptional prior year in total.”

Jones Lang LaSalle 3Q16 Earnings Call Notes

Jones Lang LaSalle (JLL) Q3 2016 Results
Christian Ulbrich


“First, I’m honored to have been asked to follow Colin Dyer and lead this great company. Colin served us as an exceptional leader throughout his 12 years as our CEO. He helped create a truly global company, led and nurtured our 2020 Strategy for focused growth and championed priorities ranging from data and technology to diversity and sustainability.”

Expect 2017 to rebound closer to the $700 billion level we saw in 2014, 2015

“In 2017, we anticipate that volumes will rebound closer to the $700 billion level we saw in 2014 and 2015. Our current projection for full year leasing volume shows them completing 2016 at about 430 million square feet, 5% lower than last year. In 2017, we see leasing volumes at level similar to this year. These market projections indicate continued robust market conditions for our transaction business into 2017.”

There’s concern from Europe about investing in the UK, but not as much from Asian investors

“Mitch, it’s a mixed picture. From a continental European perspective, there’s tremendous concern around what will happen to the UK. And as you know, I think the leadership in the – political leadership in the UK doesn’t really know themselves what they are aiming for, and they are still trying to get their picture together. The further you move away from the UK, and particularly to Asia, the Chinese, the Malaysians, the Indonesians who have been investing heavily in the UK, they are not too concerned about the UK breaking away from the EU. So their interest is still very, very strong, and I would put the Americas somewhere in the middle of the two with regards to their interest.”

Slightly lower interest with more emphasis on Asian investors money

“I think it’s fair to say that the overall interest is slightly less than we have seen in previous quarters, and that has been a trend during this year. We still have strong enough interest to get to – as we have mentioned, to new record levels, low yields in many places around the world, but the list of interest is slightly shorter. And as I mentioned before, you have, I would say, an even greater importance towards the Asian investors on big deals out there than we had before, particularly when we talk about UK investment. But also in some other places they play a more important role than they have played before.”

We’re in a fully healthy environment even if it’s not a record

“I mean, overall, we will see, going forward, an environment which I would call more of the same. We are in a fully healthy environment for the type of services we are delivering. Even if it’s not a record year from volumes in most markets around the globe, it is still on a very high level, and therefore I think we are pretty confident on our ability to continue to drive growth and to take market share.”

Jones Lang LaSalle 2Q16 Earnings Call Notes

Jones Lang LaSalle’s (JLL) CEO Colin Dyer on Q2 2016 Results

No Brexit impact outside of UK

“We anticipate that capital markets activity in the UK will rebound once buyers and sellers can agree on pricing that could happen relatively quickly. Leasing recovery may take longer since corporate occupiers who hesitate to make occupancy decisions until the politics of Brexit voting clarified. Such things as passporting, employee rights to work outside of their native countries and so forth. As I said that may take some time.”

” we have no indications that Brexit has impacted markets outside of the UK – not in Europe, the Americas, nor Asia Pacific.”

CRE has weathered year’s issues well despite more cautious tone from investors and occupants

“Looking globally across our markets, the world’s leading commercial real estate markets have weathered the years political and economic issues quite well even as investors and corporate occupiers strike a more cautious tone. We see no catalyst for a breakdown in fundamentals indeed we anticipate the slow economic growth environment continue to contribute to an extended cycle and a flight to quality in which gateway markets and prime properties can be expected to continue to outperform.”

Cycle seems elongated

“I’ve said in my remarks that interestingly this cycle seems to be elongated beyond where one might have expected. The interest rate – so take a few of the factors that you watch. Interest rates have not come off the floor that often helps to bring a cycle to a close. There is plenty of confidence, but quite sensible equity in the market.”

M&A markets are open

“we, first of all, are seeing M&A opportunities right across our business. As I said earlier on this is a point in a cycle where sellers are happy to sell because they believe pricing is fair, buyers such as ourselves have cash and confidence. So it’s a liquid market currently across the world. There are no regions where you can say that there is no M&A to be done.”

Christian Ulbrich

Increased caution will certainly affect full year volumes

“However, increased caution among those investors and corporate occupiers will certainly affect full-year volumes. We now see global market investment sales down by 10% to 15% compared with 2015 to about $600 billion. But even at this level, that translates to one of the most active years since we started recording global transactional activity in 2003.”

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”

Jones Lang LaSalle 4Q15 Earnings Call Notes

Jones Lang LaSalle’s (JLL) CEO Colin Dyer on Q4 2015 Results

The noise has produced more cautious sentiment, but capital continues to be allocated to real estate

“looking at our markets, JLL research projects investment sales and leasing volumes to maintain a healthy pace throughout 2016. The noise in the news flow has produced more cautious investment sentiment at this point, but the amount of capitals that continues to be allocated to real estate indicates there’ll be no reduction in underlying investment flows.”

China is being boosted by growth in consumer and service sectors, which is good for us

“on China and given our leading market position, we have a good perspective on what’s going on there. The slow decline in manufacturing sector contrasts with continuing double-digit growth in the consumer and service sectors. The move to services is benefitting our business as it tends to drive demand for office, retail and warehouse space, particularly in tier one cities. The effect is less pronounced in our tier two city business, but overall, our revenues in China continue to grow in 2015 and we expect the same in 2016.”

We think the cycle peaks in ’17 or ’18, nothing has changed that point of view

“We’ve been thinking in terms of a cycle which will begin to peak in ‘17 or ‘18 for some time. So this puts us in the sort of third to fourth quarter of a four-quarter game. Nothing has changed that point of view.”

Given the amount of money that’s available to invest in real estate, there’s relatively safe harbor in real estate

“given the weight of money of both equity and debt that’s available to invest in real estate and given the appetite for real estate, there’s a relatively safe investment harbor given the problems of the fixed income and equity sectors.”

Stress in China is in the tier two and three cities

“No. As I said, I mean, we’re concentrated in the tier one cities and tier two cities. And what we’ve seen is that the, I mean, the switch that’s going on away from the traditional industrial base and towards services and technology companies. And the services and technology companies are intending to focus in the largest cities as I made the comments about the demand for retail, logistics and office space in those major cities actually being quite robust. Where there’s stress in China is in the peripheral tier two cities and in the tier three cities where the industrial base was focused and where you see a clear decline in activity. But it’s working so far in our favor and of course we’re the market leaders there. We are strongly profitable in the region and we’re continuing to grow and expand our teams.”

Investors were slightly more hesitant in Q4, but we also see underlying interest in real estate from all sources

“we’ve made the comment about Q4 last year being – investors being slightly a little more hesitant than they had in prior quarters. We’ve also underpinned our thinking for markets that will basically be at or slightly above 2015 levels in 2016. So I won’t repeat that. I think we’ll just watch this during the first quarter and a half of the year. We see underlying interest in real estate from all sources. We talk to institutional investors, any specific pension funds, for example, who are still raising the percentage allocation to real estate.”

At this point the fundamentals remain robust

“And for the amount of money that’s available to invest in real estate is undiminished. We’ll see how sentiment behaves in the first quarter and whether the point you make about the CMBS markets or other factors begin to weigh on investors’ confidence. But at this point, the fundamental point to continued robust market, it’s similar levels to 2015.”

There’s been a clear reduction in demand for leasing space in energy centers

“we’ve noticed across the energy centers like Houston and Calgary, for example, within the North American continent, clear reduction in demand for leasing space and with that, a reduction in appetite for investment sales in those markets simply because the level of demand has come off so rapidly.”

Debt is still freely available. Saw a cooling of demand at the high end in particular

“Yes, you can take the debt piece out of the equation. Debt is freely available and it’s still fairly conservatively underwritten my lending institutions. So no issue there. What we did see is something of a cooling in demand at the high-end, in particular, our investment sales markets, a bit more selective purchasing, buyers not chasing risk as much as they might have done earlier in the cycle. We saw transactions indeed tending to slow and that’s one of the reasons why Q4 was a little weaker because we believe that a lot of transactions went through the year end and we’ll continue to complete in Q1 of this year.”

Sellers’ expectations of price have continued to push upwards whilst buyers’ have become more hesitant

“And your point about the bid-ask spread is an interesting one as well because sellers’ expectations of price have continued to kind of push upwards whilst buyers’ willingness to pay those continuing increased prices have become slightly more hesitant. So when you put all that together and that’s sort of the demand mix that’s swirling around out there.”

The amount of money trying to find its way to real estate is still robust

“Come back to our other statement, the amount of money, equity in particular, seeking to find its way into real estate is still robust. If you take our own LaSalle business, the 56 billion of assets under management and over $10 billion of funds available to invest in real estate. So they won’t invest that foolishly but it’s going to get invested over the next two, three years selectively in markets around the world”

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”

Jones Lang LaSalle 2Q15 Earnings Call Notes

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.”

Jones Lang Lasalle 1Q15 Earnings Call Notes

Some comments on completed transactions

“Turning to investment sales transactions, we represented Blackstone in the $1 billion sale of a U.S. hotel portfolio. In the largest single-asset real estate deal in Finland’s history, we advised developer SRV on a joint venture to develop the $480 million REDI mall. And in Tokyo, we advised on a sale of the five assets of the Hotel B Portfolio to the Japan hotel REIT.

First quarter highlights in other service lines included securing a 320,000 square foot headquarters lease for The Capital Group Companies in downtown Los Angeles, a 320,000 square foot lease for Daimler-Benz near Stuttgart. In Bangalore, we recently completed a 2 million square foot lease for Flipkart, India’s equivalent to Amazon, and that was for build-to-suit headquarters office. And in China, our valuation contract of 17 properties and 17 million square feet was completed for Alibaba.”

Companies focused on expanding, not right sizing

“We see notable shift in the composition of demand as corporates focus now on expanding activities rather than right-sizing their portfolios.”

Capital looking for management

“In funds management, we see sustained strong capital flows and deal velocity as low interest rates and low inflation attract global investors. Appetite for risk is increasing as investors seek yield in value-add and opportunistic plays. Strong performers like LaSalle are going to continue to attract investment capital in this healthy environment.”

Overall market in Americas is solid, not over exuberant

“the overall market sentiment in the Americas, it’s solid, it’s not over-exuberant, but we’re seeing a lot of capital both domestic and particularly international trying to get into assets. And as we mentioned, the result is that investors are moving out along the risk curve somewhat into big cities, tier 2 cities, tier 2 properties, to find deals as well as a little extra return.”

Companies taking more space with growth in mind

” Look, it’s — as we talked about the level of confidence amongst the corporates globally, I think if you go back to the period just after the crisis, when everyone was in cost cutting mode, and that period lasted about two to three years. Then we had a couple of years of consolidation where corporates were trying to drive productivity, not just cut costs, and so there was a different mindset coming through on that. What we’re now seeing is company’s much more inclined to invest for growth and building their top lines. And so we have this ongoing portfolio rearrangement process still in place, but in addition to that, you’ve got companies of all sizes now across all geographies increasingly prepared to go out and take more space with growth in mind.”

There may be some supply constraints too

” in some critical markets around the world, so, London’s one, Tokyo is another, the Chinese cities are a third set of examples, you’ve got a situation where the development pipeline has been relatively constrained. And so you there beginning to see, as we look forward, a situation where there could be supply constraints. And so there’s a level of enhanced activity amongst the corporates to get space now while pricing is relatively attractive, space is available, and they’re not in a cycle where the landlords have control of the markets. So put all that together, I think that’s reason we’re seeing this healthy uptick in leasing.”

Jones Lang LaSalle 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Expanding into some less headline cities

“We also continued the targeted and strategic expansion of our global platform in 2014, focusing on opening new offices in Lagos, Nigeria, Nanjing, China, and Kuala Lumpur in Malaysia.”

Plenty of money coming into real estate, the challenge is deploying it

“Strong performers like LaSalle will continue to attract significant investment capital, while investors are also increasing their appetite for risk, embracing value-added and opportunistic investment strategies in a search for higher returns. The main challenge is going to be deploying capital.’

It feels more like 2005 than late in the cycle. Prices are rational when you compare to interest rates

“So it feels more like 2005 than later in that prior cycle. If you count from the start of the cycle, we’re 5 years in, into what might be an 8, perhaps a bit longer cycle this time, given how hesitant the recovery was. If you look at pricing in the markets, we sense that there is no form of excessive pricing at this point. Yes, pricing is full, particularly for high quality assets in Malaysian markets, and I mentioned a few gateway cities in my prepared remarks. But when you compare the level of cap rate or yields, which are again in the 4’s and 5’s in those best markets, and you compare that with the bond rates and the sorts of returns that people, institutional investors are seeing from fixed income, or you compare it with negative deposit rates in Switzerland and zero in Germany, the returns on real estate still seem to be rational and not excessive. So put it all together, add the money we’ve mentioned is still flowing into the markets, and it feels like this cycle still has some way to run yet.”

We’re seeing momentum in capital markets and corporate demand at the same time

“for the first time since the great financial crisis, we’re seeing momentum in both the capital markets, as well as improving corporate occupier demand. So we’re seeing some nice, nice movement in the leasing markets, which at this time also include some very positive momentum in APAC, which we haven’t seen for many, many, many years.”

Expecting strong activity in Australia and Japan

“overall our research team is calling for regional economic growth to really stabilize at 5%, with most Asia-Pacific economies expanding in 2015, albeit China is slowing. And together with that point, we’re looking at strong activity in Australia, Japan, and a bit of a rebound in China from an investment sales perspective.”