Q3 2024 Jones Lang LaSalle Inc Earnings Call
Good morning, my name is Audra and I will be your conference operator today. At this time I would like to welcome everyone to the third quarter, 2020-4, Jones Langeless Salon Corp.
Today's conference is being recorded.
All lines have been placed on mute to prevent any background noise. After this week, Richard Marks, there will be a question and answer session. If you would like to ask a question during this time simply press the star key, followed with a number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Speaker Change: At this time, I would like to turn the conference over to Brian Holgen, Investor Relations Officer. Please go ahead.
Brian Holgen: Thank you, and good morning. Welcome to third quarter, Tony 24, earned a conference call for Jones, Lying with Sal and Corporate.
Speaker Change: Earlier this morning, we issued our earnings release.
Speaker Change: Long with his slide presentation and excel file, Intinative Supplement are Preparing Marks.
These materials are available on the Investor Relations section of our website.
Speaker Change: During the call and in our slide presentation, and accompanying an Excel file, we referenced certain non-GAAP financial measures, which we believe provide useful information for investors.
We include reconciliations of non-GAAP financial measures to GAAP in our earnings release and slide presentation.
Speaker Change: We also reference resilient and transactional revenues, which we define in the footnotes of our earnings release.
Speaker Change: As a reminder, today's call is being webcast live and recorded.
Speaker Change: A transcript and recording of this conference call will be posted to our website.
Speaker Change: Any statements made about future results and performance, plans, expectations, and objectives are forward-looking statements.
Actual results and performance may differ from those forward-looking statements as a result of factors discussed in our annual report on Form 10-K for the fiscal year December 31st, 2023, and in our reports filed with the FCC.
The company disclaims any undertaking to publicly update or revise any forward-looking statements.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Finally, a reminder that percentage variances are against the prior year period in local currency.
Speaker Change: and that's otherwise noted.
Speaker Change: I will now turn the call over to Christian Ulbrich, our President and Chief Executive Officer, for opening remarks.
Christian Ulbrich: Thank you, Brian. Hello and welcome to our third quarter 2024 earnings call.
Christian Ulbrich: In the third quarter, JLL delivered strong financial results, which demonstrated our ability to drive operating leverage across our platform, and we announced strategic actions that strengthened our position in our leasing, property management, and LaSalle business lines.
Christian Ulbrich: Beginning with our financial results, our three largest business lines, market advisory, capital markets, and work dynamics, all delivered double-digit revenue growth in the quarter.
Christian Ulbrich: We saw growth acceleration in leasing and investment sales, debt and equity advisory, and our work dynamic segment continues to exceed our expectations.
Speaker Change: These results reflect our strength in transaction markets that are still in the early stages of recovery and our continued momentum in expanding our services to clients.
Speaker Change: Importantly, we have demonstrated our ability to drive operating leverage across our platform through continued focus on process efficiency and cost management.
Speaker Change: The consolidated enterprise-adjusted EBITDA increased by 37% and adjusted EPS delivered 60% growth.
Speaker Change: During the quarter, we announced strategic actions to further improve our leasing offering to clients and to enable our people to enhance platform tools.
Speaker Change: To supplement JLL's existing leasing technology, we recently acquired Ray's Commercial Real Estate, a San Francisco technology-powered brokerage that provides client solutions using a transformative digital real estate platform.
Speaker Change: RACE strengthens JLL's platform with market-leading technology, seasoned brokers, and elite engineers to build innovative products for the full leasing lifecycle from transaction and lease management to workplace and portfolio analytics.
Speaker Change: In addition, in 2025, we will bring together all building management groups under one segment to better capitalize on synergies across platform operations, innovation, and client experience.
Speaker Change: As a result of this realignment, the property management business will report to Neil Murray, our WorkDynamics CEO.
Speaker Change: Following this shift on January 1st, our Markets Advisory Segment will be renamed Leasing Advisory and our Work Dynamics Segment will be renamed Real Estate Management Services and include Workplace Management, Property Management, Project Management, and Portfolio Services.
Speaker Change: Finally, there's high demand for an innovative product offering within LaSalle's US open-ended core fund for high net worth investors, JLL Income Property Trust.
Speaker Change: We have committed a $100 million incremental investment in that fund, which will be used to acquire assets to be syndicated to a 1031 exchange vehicle and recycled across multiple syndication offerings.
Speaker Change: These vehicles are expected to accelerate the growth of this flagship fund's assets under management over time.
Speaker Change: I will now turn the call over to Karen to provide more detail on our financial results and our full year outlook.
Karen: Thank you Christian. Our strong performance in the quarter reflects our focus on differentiating JLL services and improving platform operating efficiency. Our talented teams and the investments we are making in our business are driving superior value for our clients and creating long-term stakeholder value.
Karen: I will now review our operating performance by segment.
Karen: Beginning with markets advisory, the increase in revenue in the quarter was driven primarily by leasing, which generated double-digit growth across most geographies, notably in the US, India, and the UK, and nearly all asset classes.
Karen: The office sector, which saw both increased deal size and transaction volumes, led the acceleration with 34% growth.
Speaker Change: Globally, the industrial sector was flat to the prior year quarter, ending a multi-quarter trend of declines in the sector as deal size rebounded.
Speaker Change: and a special guest, the former President of the United States of America, Dr. Robert R. Reilly, is a professor at the University of Texas at Austin and a member of the University of Texas Alumni Association. Dr. Reilly is a professor at the University of Texas at Austin and a member of the University of Texas Alumni Association. Dr. Reilly is a professor
Speaker Change: Large transactions, where we've historically had a proportionally higher weighting, continue to increase, though we're still below the pre-pandemic average.
Speaker Change: Portfolio expansions in the Americas and Asia-Pacific, including incremental pass-through expenses, led property management revenue growth.
Speaker Change: We continue to see growth in active tenant requirements and demand for high quality assets.
Speaker Change: Combined with the general instability of the OECD Business Confidence Index since earlier this year, we are optimistic for continued pickup in activity.
Speaker Change: The leasing revenue growth combined with our continued cost discipline drove the 77% increase in market advisory adjusted EBITDA.
Speaker Change: The timing of prior year incentive compensation accruals also positively impacted year-over-year profitability.
Speaker Change: Shifting to our capital markets segment, revenue grew as improved investor sentiment along with interest rate reductions for many central banks.
Speaker Change: pent-up demand, significant dry powder, and improved debt availability all contributed to an 18% increase in investment sales, debt, and equity advisory, excluding non-cash MSR activity.
Speaker Change: Revenue increased across most geographies, led by the U.S. and Europe, and nearly all asset classes, with notable growth in hotels, office, and industrial.
Speaker Change: Our global investment sales revenue, which accounted for nearly 40% of segment revenue in the quarter, grew 15%.
Speaker Change: The U.S. and Europe performed notably better than the respective market activity recorded by JLR Research.
Speaker Change: The capital markets adjusted EBITDA growth was predominantly driven by higher transactional revenues and continued cost discipline.
Speaker Change: Looking ahead, the global investment sales debt and equity advisory pipeline is up high single digits compared with this time last year and client engagements continue to increase.
Speaker Change: Moving next to work dynamics. Revenue growth was led by a 20% increase in workplace management, largely from continued U.S. mandate expansions as Christian referenced.
Speaker Change: Project management revenue grew as shifts in business mix and a focus on higher margin projects led to lower pass-through costs which offset mid single-digit growth in management fees.
Speaker Change: Portfolio services demonstrated growth which was mostly overshadowed by the absence of fees associated with a large transaction in the prior year.
Speaker Change: The increase in work dynamics adjusted EBITDA was primarily attributable to the revenue growth, which more than offset the negative impact from the timing of certain revenue related expense accruals.
Speaker Change: We started to lap the onboarding of large 2023 workplace management new client wins in the third quarter. So the sustained growth of 29% on a two-year stacked basis has exceeded our expectations.
Speaker Change: In project management, we remain focused on securing additional mandates. However, the current level of corporate CapEx spending may dampen near-term growth rates.
Speaker Change: Turning to JLL Technologies, continued growth in software revenue was more than offset by lower solutions bookings over the past few quarters, which drove the decline in revenue.
Speaker Change: Adjusted EBITDA declined from a year ago as benefits from cost discipline and incremental operating efficiency gains over the past 12 months.
Speaker Change: were more than offset by the lower revenue and a $5 million benefit from an incentive compensation true-up in the prior year quarter.
Speaker Change: In addition, there was a $2 million dollar year-over-year increase in carried interest accruals associated with our SPARC venture funds.
Speaker Change: We are progressing to sustain profitability within this segment as we balance investing to drive growth.
Speaker Change: Now to LaSalle. Revenue decreased on the impact of valuation declines within our assets under management over the past 12 months, as well as lower fees in ERA from the structural changes in our business mix we discussed in previous quarters.
Speaker Change: Absent foreign currency exchange movements, assets under management were 7% lower than a year earlier.
Speaker Change: Valuation headwinds have moderated but are likely to continue through the balance of 2024.
Speaker Change: The contraction in LaSalle's adjusted EBITDA in the quarter was driven by the lower revenue and the absence of an incentive compensation throughout the benefit of the prior year quarter.
Speaker Change: Though muted compared to normalized levels, capital raising and deployment is up year over year, and we are seeing early indications of increased investor interest.
Speaker Change: Turning to this quarter's free cash flow. Higher cash from earnings from improved business performance was more than offset by the repurchase of the loans that Fannie Mae described last quarter. Higher cash taxes and working capital headwinds from net reimbursables as a result of workplace management growth.
Speaker Change: We do not expect the year-to-date higher cash taxes, the loan repurchase, and growth-related receivable and net reimbursable headwinds to reverse in the fourth quarter.
Speaker Change: Shifting to our balance sheet and capital allocation.
Speaker Change: Liquidity totaled $3.4 billion at the end of the third quarter, including $3 billion of undrawn credit facility capacity.
Speaker Change: We issued $800 million under our previously announced commercial paper program, with proceeds used to reduce borrowings on our credit facility and provide interest expense savings.
Speaker Change: As of September 30th, reported net leverage was 1.4 times, down from 1.9 times a year earlier, due to both a reduction in net debt and higher adjusted EBITDA over the trailing 12 months.
Speaker Change: Over the medium term, we intend to manage the business to a full year average near the middle of our zero to two times leverage range.
Speaker Change: During the quarter, we deployed capital towards growth initiatives and repurchased $20 million of shares.
Speaker Change: Our acquisitions of SKAE in the second quarter and RAISE in mid-October are reflective of our targeted M&A strategy within our overall capital allocation framework.
Speaker Change: Regarding our 2024 full-year financial outlook, growth trends in our resilient business lines remain solid while transaction activity is improving, although nuanced across geographies.
Speaker Change: Together with our cost discipline, ongoing focus on improving operating efficiency, and strong year-to-date performance, we are raising the bottom end of our full year of 2024 adjusted EBITDA target range by $150 million.
Speaker Change: Our full year target range is now $1.15 billion to $1.2 billion, which reflects a 7% increase at the midpoint.
Speaker Change: We continue to see significant growth opportunities ahead to enhance the resiliency of our business, financial returns, and cash flow. Christian, back to you.
Christian Ulbrich: Thank you, Karen.
Speaker Change: The increase in our four-year target-adjusted EBITDA range reflects continued momentum across our three largest business segments, which we expect will continue through 2025.
Speaker Change: We are in early stages of recovery for the real estate capital markets. According to JLL's proprietary Global Bid Intensity Index, bid activity further improved in the third quarter from what we saw in the first half of the year, particularly for larger institutional transactions.
Speaker Change: We believe we are very well positioned to grow revenues in our capital market segment based on the quality of our people and the platform investments we have made over the last several years which enable higher quality data-backed advice to clients.
Speaker Change: I would also like to again highlight the 20% organic growth in workplace management, which exceeded our expectations.
Speaker Change: This is largely related to expanding the contract scope and achieving KPIs for existing clients, some of which were new 2023 mandates where we delivered strongly against our original commitments.
Speaker Change: The runway in this business is powerful as we continue to win new mandates which scale revenues and capitalize on our global full service platform.
Speaker Change: 2024 marks the 25th anniversary of being listed on the New York Stock Exchange under the JLL ticker and to celebrate this occasion we will be ringing the closing bell on November 13th.
Speaker Change: While 25 years is short in the context of a nearly 250-year history, it is an important milestone to recognize our journey as a public company.
Speaker Change: Alongside delivering the best of JLL to our clients, we are driven to generate strong shareholder value.
Speaker Change: I would like to thank our colleagues for all you do for JLL. I look forward to what we can achieve together.
Speaker Change: Operator, please explain the Q&A process.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We'll go first to Stephen Sheldon at William Blair.
Stephen Sheldon: Hey, thanks, and really nice results here. First, Karen, I think you maybe mentioned the capital markets pipeline is up, if I heard it correctly, high single digits. So just curious how you guys are thinking about maybe the potential cadence of the capital markets recovery as we think about the next two to three years. You know, what could that potentially look like?
Speaker Change: Hi, it's Christian. Listen, the capital markets environment has improved pretty steadily over the last couple of months and so far we also haven't seen any pause.
Christian Ulbrich: That's just because of the 10-year Treasury going up again over the last couple of weeks. So we expect that to continue there will be no kind of
Speaker Change: flood of new deals coming, but we will see a seasonal uptick now in the fourth quarter, and then we expect a continuous improvement over the course of 2025.
Speaker Change: Any detail on, you know, does that come over with any material revenue or the general profit implications there? Thank you.
Speaker Change: Yes, Raise is primarily a tenant representation leasing brokerage firm and the uniqueness is that they have developed a technology platform for use by our own brokers.
Speaker Change: as a workflow tool, but it also provides a direct digital experience to clients.
Speaker Change: nice but not meaningful for all leasing platform but the attractiveness is that we are going to roll out that workflow tool to all our leasing brokers across the U.S.
Speaker Change: over the course of the next 18 months. And that will make them much more productive, but it also changes the experience for our clients.
Speaker Change: Scott Einberger, Christian Ulbrich, Scott Einberger, Christian Ulbrich, Scott Einberger,
Speaker Change: Great, appreciate the detail and congrats on the results again.
Speaker Change: Thank you.
Speaker Change: Yeah, let me just add a bit on the, you asked a second part of the question around did it come with any revenue and how do we think about profitability. So from a revenue perspective, relatively small amount, it's around 1% of our overall fee revenues.
Speaker Change: in leasing, but how we're approaching this given the
Speaker Change: desire to roll this out across our entire leasing platform is to focus on making room in our overall expense profile by cutting other investments that we were
Speaker Change: previously making to focus on achieving attractive margins for this overall business as we absorb it into JLL. So we will generate a very attractive ROIC from our perspective within three years, and then with cost offsets, we're making our minimum ROIC hurdles achieved from year two onwards.
Speaker Change: We'll go next to Anthony Paoloni at J.P. Morgan.
Speaker Change: you'll land this year in the 14s in terms of margin.
Anthony Paoloni: and it's shaken out to be a pretty good year. You know, your long-term range is 16 to 19. And so I was wondering if you could just, one, tell us if that still feels like the right level we should be thinking about over time, and two,
Speaker Change: What do you think needs to happen in terms of just the broader market to get there?
Speaker Change: First, maybe I start by commenting on a little bit more color on the full year in the range that we're providing. So we have given a range, the midpoint of our range is based on our transaction business pipelines at this point which reflect typical seasonality in capital markets.
Speaker Change: slightly suppress seasonality and leasing and then a continuation of the trends that
Speaker Change: we've seen in our resilient business lines and just calling out that we're mindful of overlapping new client wins and workplace management.
Speaker Change: and also some really strong growth there. So that's the midpoint. If you think about the low end of our range, that's contemplating a slowdown in transaction activity from what we're experiencing to date. And that could result from any macroeconomic, geopolitical, or interest rate risks that manifest in the market.
Speaker Change: And in the high end of our range, contemplate the more meaningful pickup in transaction activity, most notably.
Speaker Change: in leasing. So that's how we're thinking about full year 2024. We do expect continued momentum going into 2025 based on the trends we're seeing today and we'll give more specifics on expectations for overall 2025.
Speaker Change: after the fourth quarter, and I will call out that the midterm margin range that we now previously communicated did assume some level of recovery in the transactional business lines overall.
Speaker Change: Yeah.
Speaker Change: And I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: Yeah, so from a capital allocation perspective, no change to what we've previously communicated on that topic. We're focused on continuing to reduce our leverage to the midpoint of our overall target range to reinvest in our business organically and then to pursue select M&A and share repurchases.
Speaker Change: Okay, so I got thank you.
Speaker Change: We'll go next to Michael Griffin at Citi.
Michael Griffin: Great, thanks. Just on the leasing numbers for this quarter, wondering if I could get some more context.
Michael Griffin: particularly around the office portion. Are you noticing if most of the demand is coming from the higher quality space or has there been...
Michael Griffin: Maybe incremental demand from, you know, not top of the tier market product and then have Decision makers, you know, they've been kicking their can down the road for the office space needs for a couple years now Have they firmed up their? expectation for office footprints
Speaker Change: Yeah, so a few different questions in there. I guess the first one is what trends do we see in office broadly in this quarter? So it's certainly we still are seeing a focus on high the highest quality office assets And that's a trend that has really persisted over the last several quarters One notable thing that we're continuing to see is the increase of larger transaction sizes overall. That's something we've talked about that they Had been more muted they still remain if you if you look at the US office Transactions over a hundred thousand square feet are still below pre-pandemic historical averages by about 50% But we did see a meaningful uptick of around 45% In this quarter, so that's a notable trend overall
Michael Griffin: is the second part of your question, which...
Michael Griffin: space tenants are more confident in signing leases as opposed to kicking the can down the road.
Michael Griffin: Yeah, so we have seen Some more signs of confidence. I guess a couple different things we're looking at there's sort of what has been signed and then what is the overall outlook the
Michael Griffin: what has been signed, we look at the availability rate.
Michael Griffin: relative to the overall vacancy rate. So the availability rate will include leases that have been signed but not yet commenced. So that will include both downsizing, expansions, right, overall net new leasing. Importantly in the U.S. the availability rate has decreased for the first time since the pandemic. So we find that to be really notable and encouraging.
Speaker Change: Thanks Karen, appreciate the color there. And then maybe just some more insights into U.S. capital markets activity. You called out that it was up about 30% year-over-year. That seems pretty strong to me. I mean anything you're seeing in the U.S. from a growth perspective or investor interest that might have contributed to that relative to kind of the other regions?
Speaker Change: Sure, I mean first and foremost the U.S. market is usually the market which is reacting the fastest on any kind of change in the market environment and so it went down first.
Speaker Change: and it will come up first.
Speaker Change: Secondly, if you look at the capital markets from a global perspective, the investable markets are unfortunately shrinking in the world.
Speaker Change: from international investors, and they will look
Speaker Change: to invest into the U.S. probably more so than invest into any other market at this point in time. So we see this significant demand coming from those type of investors into the U.S. market, and that will be a strong support into 2025.
Speaker Change: We still have this kind of bifurcation between the different ethic classes. Multifamily is still by far the strongest, but we see now that the interest in offices is starting to increase.
Speaker Change: The challenge there is that there is very little new product coming to the market, and so there is a focus on the super high quality products, and we see now much more of a competitive environment for those type of products when they come to market.
Speaker Change: Thank you for joining us.
Speaker Change: Great, that's it for me. Thanks for the time.
Speaker Change: Thank you so much. Have a great day.
Speaker Change: We'll move next to Alex Cram at UBS.
Alex Cram: Yes, hey, good morning everyone
Alex Cram: Just on work dynamics, I think you mentioned a couple of times that you've exceeded your expectations here so far this year.
Speaker Change: I know you're lapping some of the onboarding, and I think Christian, you made a comment about benefiting really from the things that you had put in place in 2023. So just wondering if you look forward here over the next year.
Speaker Change: if you, how you think about the expectations in general.
Speaker Change: and maybe you can talk about competition in that space as well. Thanks.
Speaker Change: Sure, I mean the performance of our overall work dynamics business and specifically
Speaker Change: The amount of companies who can really provide a global experience to our clients is very limited.
Speaker Change: and so we expect continuous strong demand from our services from existing clients but as we have seen in the third quarter again from a lot of new clients coming to market.
Speaker Change: And so we are just very happy about the outlook and will continue to put a lot of focus and emphasis on that business going forward.
Speaker Change: Thank you very much.
Speaker Change: All right, fair enough. And then maybe a little bit of a nitty-gritty question here on the margin side, in particular in capital markets.
Speaker Change: Given the strong performance, I think I would have expected the incrementals to be a little bit better year over year. I think leasing was really strong, but in capital markets...
Speaker Change: certainly softer. So is that is there anything one-time is going on there should we should we think about the incremental similarly in the fourth quarter which obviously a very strong quarter for capital markets expectations
Speaker Change: Yeah, so from quarter to quarter, you can see some level of anomaly in the longer-term average incremental margins that we experience in certain business lines, and that certainly holds true for capital markets. The things that can impact it are really a mix of business, both by geography and by service line, and then certainly timing of expenses, which could impact the margin profile in a particular quarter.
Speaker Change: If you look at year-to-date for capital markets and you adjust out for the $18 million Fannie Mae loan expenses, it's around just over 40% year-to-date, which is really more in line with the historical average incrementals of 35 to 40%.
Speaker Change: All right. Very good. Thank you.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Thank you.
Speaker Change: We'll go next to Peter Abramowitz at Jeffries.
Peter Abramowitz: Thanks for the time. Yes, I just wanted to dive a little deeper into Karen's comment around the pipeline for investment sales and debt and equity advisory up high single digits.
Peter Abramowitz: I guess just trying to frame how we should think about that, is that kind of how you're thinking about?
Peter Abramowitz: and the revenue growth into the fourth quarter, and then potentially that's kind of what you're building on into 2025.
Speaker Change: Well, as we said before, the overall environment is constant.
Speaker Change: continuously improving in our capital markets business, and that is true for the investment sales side as well as it is for the debt advisory side. So, I'm not quite sure that I completely get your question where you want to have us to be more specific here. The outlook is very positive on all areas in our capital markets business, and we continue to win market share in that business.
Speaker Change: Right. I guess I'm just trying to understand whether that's sort of a proxy for what you expect your revenues to be up.
Peter Abramowitz: in that line in the fourth quarter when you say high single-duty.
Peter Abramowitz: Oh, no, no, no it's not.
Speaker Change: Okay, got it, got it. And then one on the leasing side, one of the themes in office I think from especially earlier in this year is pent-up demand coming off of the sidelines from deals that were sort of put aside in 23, whether it was recession fears or the regional banking fears.
Speaker Change: So that seems to have helped the market in 2024. I guess just curious how you're thinking about sort of that segment of office leasing, whether that's something that's sustainable into 2024 and any other themes we should be thinking about into 2025 as you sort of plan around for what you're expecting.
Speaker Change: and leading indicator for the two to three quarter period of time in terms of what will happen in terms of new decisions being taken. That's holding steady, so we feel good about that and it has been positive for the last few quarters, and we're seeing that continue. Some of what we expect to see is continued improvement.
Speaker Change: RTO impacts for the Fortune 100 companies, the average return to office requirements have increased from a year ago at 2.2 days per week to 3.3 days per week. And so
Speaker Change: We expect to see some more positive momentum there as well. And so we don't, at this stage, expect any major deviations from the trends we're seeing in office, which is falling, is different to what's happening in industrial leasing at the moment.
Speaker Change: Got it, and I guess if I could ask one more, sort of what are your expectations around industrial leasing? I know it's been maybe a weaker spot on the leasing side, Joe, so just, I know you mentioned in the slide deck, you know, declining delivery, so that should help on the supply side, but any other thoughts to frame how we should think about industrial leasing in the 25?
Speaker Change: Yeah, you know, industrial leasing, it's an interesting one because we're saying it's slowing and there's reduced growth levels, but it's often extremely high.
Speaker Change: starting point and so leasing volumes are down, demand has moderated and continues to to moderate. Right now activity is in line with pre-pandemic averages though and the long-term outlook remains favorable as we work through some of the current
Speaker Change: For the U.S. specifically, just to give a little bit more color, leasing volumes are down 26% year-over-year, and the vacancy rose slightly, but it's still at 6.8%, so we're still at a healthy vacancy rate there. And then we're seeing an uptick in pre-leasing of new construction.
Speaker Change: The pre-leasing rates in the corridor improved modestly to around 40% of space under construction, and they're still positive.
Speaker Change: Rental growth in the U.S. at just over 3%. So, some softness relative to where it's been that we expect will persist here for a bit, but no meaningful change to the medium and longer term strength that we expect in industrial markets.
Speaker Change: Alright, that's all from me. Congrats on a great quarter.
Speaker Change: Our next question comes from Jade Romani at KBW.
Jade Romani: Thank you very much.
Jade Romani: Based on what you're seeing so far, would you characterize the outlook for commercial real estate recovery as modest or potentially very strong? Past cycles where interest rates were lower, we did see sharp recoveries, so I just want to get a sense for how you think about things.
Speaker Change: That's a pretty wide range between modest and very strong. I would place it exactly into the middle. It's certainly better than modest, but I wouldn't say it's very strong. But the outlook is
Speaker Change: is positive for 2025.
Speaker Change: and you commented that so far you haven't seen any impact from higher Treasury rates on transaction pipelines but do you expect higher Treasury rates to dampen the outlook particularly for multifamily?
Speaker Change: Um, um, I'm, I'm, I'm, I'm, I'm, I'm, I'm,
Speaker Change: at least for the
Speaker Change: Probably next couple of quarters, I don't think that we will have any negative impact from higher treasury rates.
Speaker Change: I expect to see an increased demand across all asset classes for our capital markets business.
Speaker Change: Whatever the interest rates will do longer term, if it goes
Speaker Change: up too far then that may have an impact on multifamily because that is a sector which is
Speaker Change: still very much driven by domestic investors. But on the other hand, as I alluded to earlier, office, industrial, and large retail is also very interesting for international investors and
Speaker Change: They are coming to the U.S. from an allocation point of view, and they are less impacted whether the interest rates are 50 basis points higher or lower.
Speaker Change: In terms of the announcement to strengthen building operations and focus on digital leasing capabilities, you know, what went into the thinking there if you could explain more about the strategic rationale?
Speaker Change: So you're talking about our property management realignment.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: We are constantly looking at our organizational design and any opportunities to capture further synergies and to drive a better experience for our clients and frankly, also to become more productive as a platform. And this is exactly what we are doing here. The primary goal is to
Speaker Change: drive those synergies across our platform innovation and client experience because our property management business provides a pretty similar expertise and has a pretty similar operating model as our workplace management business which sits within WorkDynamics.
Speaker Change: and so that's the reasoning why we are
Speaker Change: putting that under one leadership, and we also believe that it makes JLL just easier to understand because these operationally similar businesses are now grouped together under one P&L.
Speaker Change: Lastly would be just around 2025. I know you haven't given any outlook you'll do that next quarter, but in terms of growth expectations, do you think something similar to what we saw this quarter is reasonable to extrapolate? I think most are assuming around 15-20% growth in leasing and capital markets at least for next year. Just wondering if you think the growth is sustainable.
Speaker Change: Yeah why don't we prefer to see the full results of the year before we comment on growth rates to extrapolate into 2025 so we're all clear on the baseline we're starting from for that conversation so stay tuned.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: We'll move next to Patrick O'Shaughnessy at Raymond James.
Speaker Change: Thank you very much. Thank you.
Patrick O'Shaughnessy: Hi, good morning. Can you speak to the relative importance to the industry of the short end of the rate curve versus the long end of the curve? So, you know, as we think about the long end moving up in recent weeks, but you know expectation of the Fed to continue cutting the Fed funds rate, how does the net impact of that impact the industry?
Speaker Change: Thank you.
Speaker Change: That's a great question. I'm not sure that anybody has
Speaker Change: scientific answer to that. Short-term interest rates are obviously very relevant for any kind of developments.
Speaker Change: their core assets, long-term holders, are relating more to the long-term end.
Speaker Change: So that makes it so difficult to translate that into the amount of business we can expect from those interest rate movements and how relevant they are for us.
Speaker Change: But I would go back to what I said earlier, overall the trend line we see around interest rates is favorable.
Speaker Change: for the recovery of the capital markets environment and we expect that to be the case.
Speaker Change: even though we see that uptick on the 10-year rates over the last couple of weeks, but I wouldn't get overly concerned about that looking forward.
Speaker Change: Got it, thank you. And then you took out or you borrowed 800 million of commercial paper in the quarter and paid down most of your credit facility. Can you speak to the rationale of switching your borrowing methodology a little bit?
Speaker Change: Sure, I'll take that. It's really to reduce the overall interest rate on our outstanding borrowings. And it was approximately a 60 basis points differential in benefit.
Speaker Change: Great, thank you.
Speaker Change: And that concludes our Q&A session. I will now turn the conference back over to Christian Ulbrich for closing remarks.
Christian Ulbrich: Well, thank you for that. With no further questions, we will close today's call. On behalf of the entire JLL team, we thank you all for participating on the call today. Karen and I look forward to speaking with you again following the fourth quarter.
Speaker Change: Thank you very much.
Speaker Change: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: [music]