- JLL Work Dynamics grew revenue 7% year over year to $3.5 billion, which helped offset declines in its capital markets and leasing businesses, according to the company’s Q3 earnings.
- Executives on the earnings call said that Work Dynamics achieved broad-based growth across all service lines as new contracts ramped up, including a 21% jump in portfolio services fee revenue year over year and a 5% increase in workplace management fee revenue from the second quarter.
- The property management unit within its Markets Advisory segment reported a 12% year-over-year increase in fee revenue, which JLL partially attributed to portfolio expansion in the Americas, although the overall segment experienced losses.
Led by strength in its project management, the JLL Work Dynamics segment’s revenue increased 9% in the third quarter, with growth across its workplace management, project management and portfolio service units. The firm attributed the 9% year-over-year rise in its workplace management business to new contracts it secured earlier in 2023 with Fortune 100 companies. These contracts will continue to ramp up through the end of the year, ensuring a strong start for 2024, but “the moderating economic backdrop may dampen near-term momentum in project management,” JLL’s CFO, Karen Brennan, said during the company’s Q3 earnings call.
“The win rate in the first half of this year was unusually high, and we are starting to mobilize those contracts,” JLL’s president and CEO, Christian Ulbrich, said on the earnings call, noting that the mobilization phase will continue through the fourth quarter into early 2024. “So, the outlook for that business for next year is equally positive,” Ulbrich said.
Portfolio services outperformed the prior year’s Q3 by 21%, primarily due to a large transaction for a longstanding U.S. client, Brennan said on the call. Besides that transaction, slowdown in leasing activity across the Americas adversely impacted the business, but ongoing cost management drove a 17% increase in Work Dynamics’ year-over-year earnings before interest, taxes, depreciation and amortization, Brennan added.
The firm also saw modest year-over-year gains in its JLL Technologies segment, increasing consolidated revenue by 4% as a result of growth in solutions and service offerings. Brennan said the segment’s fee revenue rose 5% “on top of a 28% year-over-year organic growth rate in the third quarter 2022.” Management attributed year-over-year increases in JLL Technologies’ revenue and fee revenue to existing enterprise clients. The current quarter’s growth in this segment follows a 54% increase in the prior year’s Q3, compared with Q3 2021, the company’s earnings release stated. During the call, Ulbrich emphasized increasing JLLT’s margins as the company moves towards making this segment business “profitable on a standalone basis, excluding equity earnings.”
Despite growth in property management, work dynamics and JLLT, the company’s overall revenue was down 2%, with fee revenue down 13%, in the third quarter. The company attributed these declines to a reduction in overall leasing volume as the result of a high interest rate environment that is particularly affecting large-scale transactions due to economic uncertainty. Pointing to data from JLL Research, Ulbrich said that global office market volume was down 6% year over year in the third quarter.
Ulbrich noted that volumes declined in the U.S., with global office vacancy rates growing 1.4% to 15.9% year over year, and that global demand continues to focus on premium quality space, with “many occupiers looking to downsize in exchange for higher-quality space that meets sustainability requirements, offers more amenities, and improves the employee experience.”
As forecasted, the Work Dynamics business has consistently been growing its margin year over year, and “that is continuing to happen,” Ulbrich said on the call. “So, the recurring revenue streams are becoming more profitable as they were in the past.”