Getting the Most From a Multifamily Customer Feedback Program | DOWNLOAD THE REPORT→

Tech Earns JLL Market Share While Office Sector Slides

It doesn’t take a Wall Street analyst to see the problems inherent in the commercial office sector. Built on building, leasing and managing offices, employees staying away from the office to combat the spread of COVID-19 has shaken the industry to its core. While some brokerages are in retreat, global megafirm JLL is reaping the benefits of technology sowed long before the pandemic began, gaining ground others have left behind. 

“We and some of our competitors have invested very heavily in technology, which allows us to serve our clients even in a work-from-home environment seamlessly and that obviously helps us now to win disproportionate market share in this current environment,” JLL CEO Christian Ulbrich told investors and analysts on the firm’s Q3 earnings call. 

During his tenure, Ulbrich has brought technology to the forefront of JLL’s corporate strategy. In 2017, JLL founded JLL Spark, a global venture fund aimed at incubating proptech startups. The $100 million endeavor has invested in more than 20 proptech startups around the globe to date. Last year JLL created a new division within its structure, JLL technologies, aiming to manage the firm’s comprehensive technology portfolio under one roof. Smart office solutions, AI-powered apps, data intelligence and cutting edge proptech startups have put JLL in a position to leverage technology when they need it most. 

“Overall third quarter results were at the upper end of our expectations,” Ulbrich told investors. 

JLL’s consolidated revenue fell 12% to $4 billion and fee revenue declined 23% to $1.4 billion. The firm’s adjusted adjusted EBITDA of $244 million represented a decline of 19% from the prior year, according to public earnings reports. In the context of the commercial real estate’s current market conditions, those numbers appear strong.  JLL Research reported that activity in the third quarter was down 46% from a year earlier, an improvement over Q2, but still far too low. Vacancy rates moved up across all regions in Q3, now sitting at 12.1% globally. 

Global economic activity is still being stunted by the virus. JLL doesn’t expect that to change soon. Instead they’re focusing on adapting to what they consider the new normal. Companies are transitioning to some form of hybrid work that allows employees to determine where and how they want to work. That means head counts will be coming down, another bad sign for the struggling office sector. JLL believes those losses in head count will be at least partially offset by a combination of job creation and the de-densification of the office space. In other words, while fewer people may be in the office, each worker will need more space, not less, reversing decades of occupancy trends. 

“Taking a data-driven, technology-first approach is key to building value for our clients and shareholders, and, with the rise of technologies like machine learning, artificial intelligence, IoT and software automation, there is enormous opportunity to achieve better outcomes,” said Lerner, Co-CEO at JLL Technologies. 

The key is JLL having technology and data infrastructure in place prior to the pandemic, allowing the firm to collect information and analyze the new normal as it develops throughout the year. Ulbrich has been a proponent of a holistic approach to technology at JLL. Ulbrich’s strategy is to lead by example. Cutting edge proptech and new office designs are regularly being implemented in JLL’s own offices to show off to clients, leveraging the firm’s credibility to showcase technological solutions some may be apprehensive about. Space utilization technology has been particularly impactul for JLL, according to Ulbrich. Trying to understand the new normal of office use has made space utilization technology even more critical. Investing in it to have it up and running prior to the pandemic has given JLL a head start. 

“Further investments in our technology platform have proven to be a strong differentiator when conveying our capabilities and dialog with our clients as the pandemic has accelerated technological disruption in the commercial real estate industry,” Ulbrich said. 

Competitive advantages from technology may be giving JLL an edge in current market conditions but they’re unlikely to reverse JLL’s course entirely. For that, market conditions will need to improve. Economic growth and office occupancy are the tailwinds of the sector. The sublease market is now larger than during the dot-com bubble and could feasibly reach 150 million square feet of availability by the end of 2020. Give-backs across markets led to a 28.9-million-square-foot decline in occupancy (the largest single-quarter drop on record) and a subsequent surge in vacancy to 16%, according to research. 

Those numbers are an ugly elephant in the commercial real estate board room. Technology is providing a buffer, in most cases, even an advantage, but no innovation will be able to reverse the sector or JLL’s current trajectory. For that to happen, some return to normalcy will be necessary. If that’s even possible.  

Associate Editor

Your email address will not be published. Required fields are marked *

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

More Stories
Vaccine News Boosts Real Estate Stocks
Vaccine News Boosts Real Estate Stocks