INTERVIEW: JLL expects another ‘very strong’ year in 2015

JLL emerged as the top broker in Europe in terms of investment advisory, according to the latest edition of our annual ranking. The company’s CEO EMEA Christian Ulbrich is also upbeat about 2015.

The company turned in ‘outstanding’ results in 2014, Ulbrich told PropertyEU in an interview. ‘We saw a great performance pretty much across board in 2014 but Q4 was very very strong. The last time we saw that sort of stunning performance was in 2006-07. We are also very certain that we will see another very strong 2015. At the same time we are aware that this is not new the normal. This type of growth won’t continue forever.’

JLL is ‘well prepared’ for when markets start moving south, Ulbrich said. ‘Our goal is to build a business that is sustainable in the long term. In the short term and at a specific time in the market cycle, we may see double-digit growth in our capital market business, but we have worked hard these past years on building up our property services and the recurring income side of the business. The difference in 2014 was that capital markets and transaction volumes were very strong, so that added icing to the cake.’

For the coming year, Ulbrich believes 2015 will be more of the same. ‘There won’t be a massive difference to 2014. Just that the geopolitical context has worsened. I am most worried about the political and particularly the geopolitical situation,’ he said, pointing to the conflict between Russia and Ukraine and the rising threat of IS. There are no obvious solutions to either of these situations, he added. ‘For many economic problems in the world, there could be a solution, it’s often just a matter of politicians getting their act together. It’s not rocket science. Solving these problems is more a question of political will and decisiveness.’

In terms of economic threats, Ulbrich says he doesn’t see any specific real estate challenges for the coming year. ‘Interest rates will remain very very low and the yield gap in terms of financing and relative to other asset classes is currently quite stark.’

At the same time, Ulbrich is concerned that the current political climate in Europe is not favourably disposed towards real estate as an asset class. In a number of countries, measures are being taken to increase taxes, introduce new regulations or step up tenant protection, he pointed out. ‘I don’t see any decisions being taken in the next 24 months that will favour real estate. Politicians will use measures against real estate investment to placate the wider population. This is more prevalent in some countries rather than others and you see it more on the continent than in the UK and Ireland. But it remains to be seen how a new UK government will look at the housing market in London.’

Real estate is a ‘cities business’
In terms of opportunities, Ulbrich believes real estate investors should be focusing on cities rather than countries. ‘What is very important in the real estate business is that it is predominantly a cities business. We have successful cities and we have less successful cities around the world. And I think we have very many successful cities in Europe. I’m not at all concerned about the prospects for those who want to invest in Europe. It all depends on their risk profile and return expectations.’
Ulbrich believes that both London and Paris offer ‘fantastic’ opportunities. ‘I would like to encourage people to count the number of cranes on development sites in Paris. There aren’t many. In fact, in many cities around Europe we have a very clear lack of development of great new space. There are plenty of opportunities for developers, that’s for sure.’

It is misleading to look at the economic growth of a country, Ulbrich argued. ‘Economic growth sits in the cities. Frankly, as a real estate investor, it is not of immediate interest whether a country like France is experiencing economic growth at a national level. What you want to know is the economic growth of Paris if that is where you want to develop your building. If any international corporates go to France, they will go to Paris. So you have to look at what potential tenants are doing. In that context, I think the prospects of Paris are very good. Developers don’t always get it right, but I fly 200 days a year and travel to many places around the world and I have never seen a place like Paris. Here you have a massive gateway city and virtually nothing is being developed!’

At present, the UK is the only place where development is revving up again, Ulbrich pointed out. ‘Frankly, if you look at the quality of office space in some districts, hopefully we will lots of new developments of Grade A office space, particularly in the core part of the West End in London and the City.’

Ulbrich is also upbeat about development prospects for many cities in Germany. ‘We’re seeing an influx of new inhabitants into many cities in Germany; that will lead to new development in the residential sector.’

Since the crisis, development has become something of a dirty word, but that is starting to change as supply starts to dry up in some of Europe’s leading investment locations. Very often it is the foreigners who start up development again in a cycle, Ulbrich noted. ‘We see that in many markets where foreigners are active. For example, Tishman Speyer was the first to kick off an office development in Frankfurt.’