It came as a surprise to no one. Since November 2022, Jones Lang LaSalle (JLL) had anticipated that it would suffer the consequences of a recessionary environment in the first quarter of 2023, and indeed the global commercial real estate services giant recorded a quarter-over-quarter and year-over-year decline in earnings. The firm’s first quarter revenue totaled $4.7 billion, marking a 2 percent drop from the first three months of 2022. Fee revenue went on the downswing as well, dropping 17 percent year-over-year to roughly $1.6 billion.
JLL’s low earnings result is the tale of two business segments. The firm’s Capital Markets and Markets Advisory segments were the source of the company’s revenue loss. JLL points to the rising cost of financing and increasingly stringent lending guidelines for wreaking havoc on the transaction market, leading to the 39 percent year-over-year drop in both revenue and fee revenue in its Capital Markets business. Macroeconomic uncertainty had a dampening effect as well.
As for the firm’s Markets Advisory segment, year-over-year revenue and fee revenue dropped 7 percent and 14 percent, respectively. Markets Advisory is a multi-faceted segment, so in spite of the overall decline, the business line did see some successes. While lower transaction volumes and a drop in average deal size produced a 19 percent decrease in leasing fee revenue, on the upside, expansion of the firm’s portfolio in the Americas played a role in the 7 percent growth in property management fee revenue.
Overall revenue decline notwithstanding, JLL did not suffer losses across the board. The firm’s JLL Technologies (JLLT) business segment recorded a year-over-year increase of 25 percent in revenue and 29 percent in fee revenue. The multifaceted business line consists of several tech products and initiatives designed to enhance operational efficiencies, improve client and employee experiences, and expose new business insights via software data. “We’ve created a best-of-breed technology portfolio and our clients continue to look to us for technology and services, even in this current economic climate,” Mihir Shah, Co-CEO of JLL Technologies, told Propmodo.
JLLT offers such options as integrated technology and services for intelligent facilities management, state-of-the-art solutions for increasing property efficiency, IoT and smart building technologies, and data strategies and systems to provide insights for global real estate portfolios. The company is seeing robust demand for a range of its tech services. The Building Engines operations platform has proved particularly popular among investor clients and its Corrigo workplace management platform is experiencing growth among corporate clients.
JLL also incorporates JLLT internally, and while tech-enabling its core real estate services does not have a direct impact on earnings, it does have a notable effect on the firm’s abilities. “Our Capital Markets team is now leveraging our new AI-powered platform to identify, analyze and source pipeline opportunities,” Shah added. “In the first quarter, one in five of all Capital Markets pipeline opportunities globally was enabled by our AI-powered platform.”
Another ray of light for JLL amid the lackluster quarter was the firm’s Work Dynamics business, which provides services to organizations to not only help them shape their workplaces into better environments for their employees to thrive in, but also to assist them in contributing to the creation of a better world. With more than 45,000 specialists to call on across the globe, Work Dynamics enables clients to enhance performance of their portfolios and staff, and to achieve goals pertaining to a more sustainable built environment. The Work Dynamics segment saw revenue and fee revenue increase 11 percent each from the first quarter of 2022. The firm can thank a 24 percent jump in its project management services for the steady upswing in its Work Dynamics business, with continued project demand predominantly in the U.S., France, and the Middle East.
JLL expects positive numbers for JLLT and its Work Dynamics business to persist in 2023. As for other business lines, specifically Capital Markets and Markets Advisory, the firm has no illusions. Second quarter results will likely continue to reflect market turbulence in the form of an ongoing lag in investment sales and leasing activity. “We expected a very slow first quarter and a very slow second quarter, and that is still the case. But we do expect a significant uptick in our performance in the third quarter and then a very, very strong fourth quarter,” Christian Ulbrich, President & CEO of JLL, said during the company’s first quarter earnings call on May 4.
JLL’s revenue took a hit in the first quarter of 2023, but so did most commercial real estate services firms. The firm had braced itself for the results, so they are hardly left scratching their heads. JLL also did something new in the first quarter with the release of an enhanced version of the earnings supplemental file with the hopes of making the modeling of its business easier. The enhanced Excel document offers a historical perspective of quarterly financial results segment-by-segment, including such details as fee-based comps and benefits, cash flows, and total operating expenses, going back to 2020. JLL is still very much on solid ground with approximately $78.5 billion in real estate assets under management across the globe and expectations of a turnaround beginning mid-year.