Dive Brief:
- JLL grew real estate management services 7% year over year in the first quarter, driven by strength in workplace and project management, while U.S. leasing continued to show momentum in the office sector and accelerated demand in the industrial space, the company said in its Q1 earnings report.
- The leasing growth is counterpoint to concerns that AI will drive down space needs, according to CFO Kelly Howe. “Ironically, I would argue that the AI boom has actually been … a boom for our leasing business as the ecosystems around all of the AI startups [and] financial services have really caused an uptick in activity, particularly on the coasts” in San Francisco and New York City, she said on JLL’s earnings call yesterday. “At this point in time, we're really not seeing an impact on our business from what people are thinking about in terms of AI concerns, headcount, employment, etc.”
- AI is also benefitting the real estate services giant itself, Howe said, as its employees adopt the company’s proprietary technology to do their work more effectively.
Dive Insight:
JLL’s AI adoption rate is “incredibly high,” President and CEO Christian Ulbrich said on the company’s April 30 call with analysts to discuss its financial performance.
Three-quarters of the company’s employees, across its core enablement products, use the technology, according to Howe. “We’ve got 25,000 employees who are working on our enterprise AI applications every day,” she said. “We’ve seen a 60% year-over-year increase [and] we expect that to continue to grow.”
There is “a lot of excitement amongst our colleagues to really use these new language models,” Ulbrich said. “On that end, we feel real momentum, [with] several agents becoming live per week on the citizen-development side.”
Ulbrich called AI “a tailwind for our organization” and credited the richness of the data it has on its platform. “That data platform is growing with every transaction we are doing, with every service we are providing to our corporate clients,” he said.
The technology’s benefit extends to the company’s valuation and risk advisory business, which is one of the areas analysts thought would be at risk of disintermediation, Ulbrich said. “At the end of the day, there’s … a very important aspect [of] who is confirming the potential valuation, where the brand aspect is absolutely significant,” he said, referring to the importance of its risk and valuation professionals’ expertise. “So in summary, for now, we don't see any risk of disintermediation.”
Workplace management, leasing revenues climb
JLL’s workplace management business reported high-single-digit growth due to mandate expansions — organizations requiring employees to return to the office — and to a lesser extent new client wins. Higher volumes in the U.S., including from new data center wins, delivered double-digit project management revenue growth, Howe said.
“Workplace management contract renewal rates are stable, and our pipeline is strong, albeit second-half weighted,” Howe said. “Client activity within project management remains healthy, particularly in the U.S., positioning us for continued momentum over the near term.”
Global office vacancy declined marginally, to 16.8%, as supply shortages for high-quality space intensified, creating spillover demand in the U.S., the firm’s earnings presentation showed. Rent for prime office assets grew 3.6% year-over-year.
Office leasing volumes in North America increased 7% year over year, with growth in the U.S. due to pent-up demand from renewals and higher office attendance in the gateway and several secondary markets, the company’s earnings presentation stated.
“The office leasing revenue growth notably outpaced the 1 percent decline in market volume,” Howe said. “On a two-year stacked basis, global leasing advisory revenue growth was 29 percent, reflective of strong ongoing and broadening demand.”
Office leasing transactions and deal sizes both increased in Q1, driven by gateway markets, Howe said. She reiterated that activity in the New York and San Francisco markets were driven largely by AI organizations looking for space to bring their people together as well as the financial services sector.
Leasing also benefited from acceleration in industrial verticals, which grew gross leasing revenue 17% year over year in North America, with a meaningful contribution from data centers, Howe said. Third-party logistics tenants remained the most active as companies outsourced logistics solutions for greater flexibility and efficiency to meet growing from e-commerce retailers.
Supply chain and network optimization requirements are expected to drive further activity, as regionalization of higher-value manufacturing, growing defense spending, rising e-commerce and urbanization provide long-term drivers for activity, the earnings presentation stated.
There has been no material impact to date from the conflict in the Middle East, Ulbrich said, but the company has taken a conservative approach to leverage and is prepared for a “wide range of outcomes.”
“If the conflict would have been solved within four to six weeks, I would have said the impact outside of the Middle East would have been almost unnoticeable,” he said. “But with every week this is continuing, we have these higher energy prices and all the other implications around lack of fertilizers, impact on the chemical industry, you name them. And so what people have stored, which helps them to bridge that impact, is kind of fading away. And at some point, they all have to pay for that higher energy.”
The independence of the U.S. when it comes to purchasing energy, fertilizers and other products has helped provide shelter for the business environment for now, he said.
