Jones Lang LaSalle Incorporated (JLL) Earnings Call Transcript & Summary

Welcome. Thank you, everyone, for joining us today for a live webcast with Neil Murray, CEO of our Real Estate Management Services business or REMS, as you'll hear throughout the program today. During today's session, we're going to talk about outsourcing and the outsourcing opportunity for JLL. We're going to talk about the strategic evolution of the businesses. We're going to talk about our clients, and we're also going to talk about the long-term outlook. As a reminder, today's presentation includes forward-looking statements about JLL's future performance. Actual results may differ materially. Please see our SEC filings for more details and refer to the slide for additional disclaimer information. We'll also reference non-GAAP financial measures throughout the discussion with reconciliations available on the Investor Relations page of JLL's website at ir.jll.com. [Operator Instructions] So Neil, thank you for being with us today. We really appreciate you taking out the time and I'm very excited to talk about REMS, but also what we're hearing from clients and the future opportunity.

Sure. Great to be here.

As part of your role of CEO of REMS, you oversee JLL's largest resilient business lines, the workplace management business, project management, property management -- each of these benefit from strong outsourcing tailwinds, industry fragmentation and significant white space for long-term growth. And these secular drivers have been durable if not, they've actually strengthened when we reflect on the past 6 years during a quite volatile and complex environment. For those less familiar with outsourcing in our industry, how do you think about the value proposition for a client or a prospective client for outsourcing? And what is your perspective on the long-term opportunity for JLL and real estate outsourcing?

There's a lot there, Sean, let me try and break some of that down. I think we operate in an extremely large outsourcing market. It's over $1 trillion with a growth rate of a year. It is a combination of sort of out task services and elements to full strategic partner outsourcing. But it's an industry with lots and lots of runway. You asked about the reasons why companies would outsource. I mean it's about focusing on their core. It's about the ability of companies like us to save the money, it's cost saving and efficiency access to expertise to flexibility. All the reasons, for example, the IT industry outsourced and I guess, in the western world, outsourcing began in real estate at real pace probably late '90s into the early 2000s. So like a super exciting and growing opportunity and we're 1 of a very small number of players that can meet the full spectrum of needs in that industry at real scale.

So if you take a hypothetical company that is that hasn't even started the outsourcing journey -- they're doing everything themselves today -- how does that relationship tends to evolve time if they were to engage JLL to be their partner?

Yes. I mean I think it's -- Sean, it's -- there isn't sort of 1 size fits all model companies in different industries approach outsourcing at different rates from different areas, sometimes it's needing help with a particular area, in a particular geography. Sometimes it's a service line that they go sort of out task at scale. I think the point is there are many entry points into an outsourcing relationship and we have the capability to really scale in any way required by the clients. So in some cases, there is, I would say, FM is a typical area. You have maybe engineering services that a company is finding difficult to recruit real high-quality engineering talent into them. And so because there's no career path, if your core business is something completely different than real estate services, you're better offer the partner to help. So yes, lots of entry points in. I think over time, we're at our best when we're truly a strategic partner, when every facet of the real estate value chain we can help with because we can bring the full strength of our platform to bear. A tasking, there's far less differentiation service provider to service provider. It's really people you're providing. But when you get to the point where you're having conversations at executive level in the client business, helping shape their core strategies, that's where we as a company really excels.

Yes. I'm going to come back to that client topic later on. But our REMS business line don't always get as much attention quarter-to-quarter with the investment community. It's important to acknowledge that we've been building and growing these businesses for many years, largely organically and have established a very strong top 2 market position globally. 80% of our total revenue now comes from era business lines, this revenue has been growing 10% per annum since 2020, and that's through a pretty complex market environment, I think is quite impressive. You joined JLL in 2017 as our European CEO. You've been running the business globally, as you reflect on the past decade for REMS, what have been the strategic moves to get us to our market position today.

Yes. I mean that's a story that have been absolutely numerous moves. I had the privilege really of inheriting in 2019, a fantastic business, wonderful foundations. But I think for a business like this, scale is such an important factor. You're trying to leverage multiple dimensions or model multiple specialisms. It's sometimes describe it as a Helix, like the notion of geography is a big factor in what we do with specialists, geographical dimensions to a relationship. Asset class is relevant a manufacturing facility and office facility, a retail facility for an example. Clearly, the industry is very relevant, the industry that our clients operate in. I'd like to talk to you a little more about that later, but then the individual service specialisms. So you have this sort of helix of activities, if you will, more than a matrix. And how do you organize yourselves in order to be able to bring all of those specialisms to bear, but do it in a way that's scalable. So in a business like ours, being able to bring the very best of what we do to every single client, no matter where they are really matters. So it's the hard yards of codifying process. In every single thing we do and making it scalable, winning the best site, the best building -- running every building like the best building, running every service like the best service. So to build a scaled business of, as you said, 88,000 colleagues now around the world in multiple geographies requires some real structural intention out of the culture work a lot of work in data and technology to enable the whole business, focusing maniacally on putting the client and client outcomes at the center of everything we do and just building a business that's resilient, predictable, projectable, dependable and 1 that our clients can trust every single day.

There's a few threads there that you highlighted that I think -- we often talk about when we think about the evolution of JLL, the globalization of the business lines, the integration, the tech enablement, the platform. So as I reflect on how you're talking about the client experience in that certainly is where all those things have come together to help to drive that growth on the REM side. I'd be remiss if we didn't talk about investors. I mean 25% of REMS is coming from investors, about 75% of it is coming from occupiers. And the core service businesses for investors and REMS is the property management business, which we integrated into the segment in 2025 and we globalized it. We appointed a new leader, and we've been really positioning that for long-term growth. Where is the property management business today? And what is your vision where we can take this business long term?

I mean the property management came into the REMS umbrella in at the start of 2025, a fantastic business that our clients really value and need. I'd say they grew up. Property management grew up as a sort of hyper-local business. Property management has traditionally been procured asset by asset in local markets. And therefore, its structure kind of reflected that, that it was often an adjacency to an office leasing mandate or a capital markets mandate, we would run a building. It did have platform. It did have consistency. It did have scale. But it was probably to local business. And we took that business on. We saw trends in the investor landscape that we'd seen before in the altipaer landscape. I think if you look at the time line between, say, 2012 and 2020 a lot of the value of investors -- investments in real estate came from the capital markets. I think in the time from 2020 to 2026, maybe even a little bit before, you see that real estate is a much more operational asset. Like value is derived for investors based on operational access, operating the assets really, really well. And that plays to strengths of a company like JLL. So looking through that lens of the operationalization of value in the asset management. We saw the beginnings of outsourcing trends at portfolio level in property management that were different than what went before. A movie we'd seen before shown in the occupier side. And so we -- it's about bringing our strength to bear. The first thing we did was we globalize the business and globalized doesn't mean fully centralizing it, but all the thing I talked to you about in the occupier business, building platform and making sure that all of our data was absolutely consistent and we were leveraging that data at scale, making sure we had professional oversight and leadership and standardization, codification of best practice, standard operating procedures in everything we did. And then, of course, a client segmented approach, making sure we were putting the strength of the firm around individual strategic clients. As part of that, you look at the portfolio you have and not everything you have fit into a vision for where the property management business is going to go. So we've had some time going through that. We're probably 70% 3/4 of the way through that process of of maybe realizing that some of the property management relationships we had around the world aren't exactly in line with our strategic vision for that business, just from a margin profile, but from a style of competition or an asset type or whatever it was. So we very thoughtfully and professionally went through that process of, in some cases, renegotiating, or in some cases, bringing an alternative provider to the client. I think we have a much more focused business now. We've got a platform that's ready to go. And as I said to you, we're very excited about the what we're seeing in that industry from a portfolio outsourcing perspective that we think we're really well placed to take advantage of.

I mean if I think about everything that you've said that we've been able to achieve to date across workplace management, across property management. A lot of it comes back to scale. And you mentioned scale earlier. One of the underlying drivers of JLL's competitive positioning is our resilient foundation that we've built and our scale has been a meaningful enabler of that increased resilience over the past 2 decades. And is this quarter a whole business, but in many ways, REMS sits at the center of it. And as you often say to me and our investors size and scale are not the same thing. So for the broader audience, how do you think about the value of scale for JLL as well as the REMS business lines?

Look, Sean, I think it's a really important point that size and Scott are not the same thing. The words echo in my ears from Cynthia Cantor actually who runs project management for us use that exception all the time to talk about 88,000 employees to talk about 80 countries or 30,000 projects delivered annually is about sort of vanity if you're not leveraging the scale to the benefit of our clients and shareholders. It's about scale being able to, as I said, codify everything you do. So you've a platform that you can leverage, like, that's where leverage comes from, whether it's organic or even inorganic opportunities, like I would have never considered acquisitions, for example, if we didn't have the platform that was scalable to be able to absorb. So it opens up opportunities that weren't there in the past. Just a general having a scaled platform unlocks resiliency. It unlocks consistency, predictability, very, very different. And as I said, there are many, I think, big businesses in the world, but to really focus on scale and platform as your most important lever to give that predictability of growth and consistency to our clients is extremely important.

I think about 5.9 billion square feet of space that we manage around the world. And what you often say to me, which is, if you think about the full scope of that and the full scope of people, including our own employees and different subcontractors involved to truly manage that space, that's incredibly complex to do an tech.

It is. I mean I'm glad you think about 5 billion -- 5.9 billion square feet, I find it very hard to visualize get around the business and see a lot of it all the time. But you're right, there are multiple dimensions to this. You need playbooks, you need standard. But you also need to have an environment and culture. You can't codify every eventuality in a building, for example. So alongside that standardization and rigor. You create an environment where people want to work, want to serve the clients and want to express themselves, bring the best of themselves to every environment. So it's a sort of a a combination of both really, of standards and platform, but also recognizing the humanity in everything we do and making sure we're empowering people to do great work for their clients.

Yes. During your presentation at our investor briefing earlier this year, you discussed the broad diversity of our client segments, the distinct evolving needs of those client segments as well. And on the occupier side industry expertise is foundational to how we run the business and how we go to market. And this is a very different lens than the traditional way that a lot of people look at our industry, property type by property type because looking across different intersegments it's radically different property type requirements and we're tasked with operating across those. Can you provide more perspective on just the role of industry to the business today and how you're thinking about it going forward? I mean, I got to be careful not to dig out on the organizational structure here, but I think, look, this is a really, really important dimension to our value proposition to our clients.

When we talk about strategic relationships when we talk about why is real estate even considered strategic to our clients. That's a whole other conversation. But I've always described it as not just a sort of factor of production, but probably the most important visual manifestation of a company's brand and a company's culture. So if you think about sort of real estate in that context, if you want to have a strategic relationship with some of the biggest companies in the world as we do, you have to truly understand their world, their industry, their challenges. So that you bring your expertise to bear in the context of a specific industry. If you think about the language or regulation, regulatory environment in life sciences, as an example, completely different regulatory environment. You could say, Neil, facilities management and project management are the core services, but they're nuanced in a life sciences environment. Think about it in data centers, a whole different set of operational KPIs. Yes, there are engineering services or project management services, but they're in a completely different context and environment, advanced manufacturing the same in the defense industry and so on. So we want -- and we insist that our most senior client-facing people at truly understand our clients' industries because that's the context for everything we do and the context with which we shape a solution that's specific to the client. Now -- the danger with organizing by industry is that you can go too deep. We at the moment, work across 7 deep industry with subindustries across our business. You can't let those businesses go to the ground independent, siloed business, businesses with air between them. So finding the right structure whereby the industry. The client-facing element is industry-specific and deeply knowledge about the clients' industry. But then as you go down to the organization, you meet capability platform that's the balance we've designed, found and tweaked over the years to bring all the best elements of what we do to bear. And that's been a sort of an ongoing evolution in the business. But to your point, I think industry specialism has been a massive driver of growth and eminence in our industry. What's so interesting too is some industries real estate requirements are diversifying radically.

Sure. Tech companies have more manufacturing-centric requirements, e-commerce companies that may have historically been more industrial first have brick-and-mortar requirements. Thanks have data centers. I remember on the REMS panel that we hosted at Investor Day, we talked a bit about high-growth industries. What are some of the high-growth industries that you are thinking the most about at the moment?

Look, I think the way to frame this, certainly for the investor community is about diversification of industries, a high-growth, fast-moving industry today. They pass the button sometimes. We ran to keep up with the unbridle growth of some of the tech companies for a number of years, life sciences certainly as well, you've seen a shift towards much more advanced manufacturing with some of the tariff environment, reshore environment, data centers, obviously, is in the news everywhere. I think it's important never to be overly focused on a single industry that happens to be providing growth at a given moment in time. I think all of the learnings you have from different industries are applicable to 1 another. The tech industry is an example where we have the privilege to serve some of the most of the biggest tech companies in the world. As I said, we had years of just literally running to keep up with the crazy expansion they went through. And as capital shifted in those industries more towards AI and towards data centers, they had to think differently about capital allocation in their own businesses. I had to think differently maybe about frugality in their own businesses. And again, some of the learnings from other places were able to be brought to bear and vice versa. So I love the diversification by industry. I love the resilience that it gives our business. And yes, we also benefit from some of the fastest-growing industry.

I'm sure everyone is interested to hear about what you're hearing from clients today. I mean you're on the road a lot with clients and our people.

What are we hearing from our big enterprise clients today? I mean hard to summarize to the points we've just been discussing, there is -- there are all kinds of different scenarios playing out across multiple industries. But I would say, generally speaking, the complexity we're all feeling is front of mind for our clients. Complexity, geopolitical complexity, obviously, with complexity around shifting business models. A real estate decisions tend to be downstream of some core business decisions as we shift as a company client shifts to more use of technology, what does it mean for their talent needs, whereas that talent need to sit what kind of on do they need to attract and retain? How are they thinking about manufacturing in an increasingly kind of strained world. Many of our clients have have businesses in certain parts of the world that are in somewhat in conflict or intention at the moment. And so that theme of complexity plays out wherever we go, i.e. think that JLL is extremely well positioned as a trusted adviser to deal with that complexity. We talk about REMS should deliver those things we talked about. It should deliver high single-digit growth and some margin expansion through the cycle, right? When I say through the cycle, I mean through a cycle of complexity too, because clients need more help. Clients are thinking about total cost of occupancy, the days of thinking about each service line that JLL provides separately, thinking about FM or operations separately from capital design and build out of space separately from portfolio decisions is gone is over. Those are integrated decisions. Clients are thinking about the where, the why, based on changing business needs based on live occupancy data based on I mentioned earlier that this notion of employer of choice, manifestation of brand and ambition. All those things come together now under a single leader in the real estate function that reports to the C-suite to the highest level of client organizations. And so where we started this conversation, Sean, the idea of being able to to provide services and solutions across multiple services in an integrated holistic manner is absolutely critical to what our clients need right now.

That's a good tee up to talking a little bit more about the future. And I don't think you can talk about the future at JLR without talking about our new strategy, accelerate 2030 that we introduced earlier this year. Our industry-based approach is intrinsically embedded in a work with our largest enterprise clients. We already talked about that a bit. One JLL, as we often say, the way that the business lines work together across JLL and for any given investor or occupier is another critical consideration in how we work with our clients, and it's core to our deepening client relationships imperative. Can you provide some perspective, some views on One JLL as a strategic growth driver and the role of REMS in deepening client relationships.

Yes. I mean I think the first point relating to the strategic framework, the imperatives that we've that we've articulated across the next phase of development of our organization. We have lots of runway. We look at our client base, I think around 50% of the Fortune 500, we serve, meaning there's 50% we don't. We serve 95% of the top 100 investors but often we provide a single service to them. I talked about some of the industry tailwinds that I think are bringing those services together and bringing momentum to the outsourcing business. But generally speaking, what we're seeing is just such an amount of opportunity to do more with existing clients to do more in our core business. And so when I think of that the REMS business, apart from being, as you described, a very resilient, strong projectable business that sits within the overall JLL enterprise portfolio. It also serves as a bit of a custodian of those more senior client relationships. So if you think about it from an occupier perspective, we're walking the halls of our client organizations were in their homes as such every single day -- when -- and even from an investor perspective, the property management business means we're sitting there in the assets, feeling what's going on live. And of course, the information flow between the 2 investors really need to understand what occupiers are thinking and occupied trends and vice versa. So REMS, I think, naturally plays an extremely important role in that sort of one JLR philosophy. Why do we talk about 1 JLL because by definition, we have different styles of business and specialisms in our organization. We're a big business. We can't be generalists. We can't be mediocre in anything we do. We have to have specialism. We have to be world-class in every single aspect of what we do. And if you're going to do that, if you're going to focus structurally and investment-wise, on being world-class at everything you do, you have to find ways of bringing it together. And we kind of started this conversation about the REM story, the building of platforms, the wiring of the organization. That is true of the enterprise, too, every single touch point we have as JLL. We still just do one-off transactions sometimes and the opportunity to take a transactional relationship and turn it into a strategic relationship and account, if you will, is immense. Our women in Manic right across Jet are focused on that. The whole mindset has shifted because we're all working on the same platforms now. We're seeing the value of data. We're seeing the value of consistency. And thankfully, there's a draw from our clients to do this in a much more joined way. So yes, we call out one JLL as a sort of core tenet of everything we're trying to do as I reflect on where we were a decade ago, just from a data perspective to understand our clients relative to where we are today, I'm amazed at how deep of an understanding, we've been able to build around our clients, the footprints within the JLO ecosystem outside of the JL ecosystem. And I think that's a good transition to the data and AI discussion, which we spend so much time talking about from a strategic perspective and with our clients for that matter. How is data and AI translating the imperative into the REMS businesses? And what do you think are going to be the long-term benefits of data and AI for your businesses?

Yes. Look, we've been absolutely obsessed with technology, with data, in general, for over a decade now. we invested heavily in the whole JLT to -- we invested in really bringing technology and digital expertise and sort of viewing them across the entire organization for the last decade. Did we know that AI was coming as quickly as it did and would have the ability to amplify that investment?

Well, I'm not sure we did. But being obsessed with how we recorded data in our organization in a consistent manner. For the last number of years, has created this engine, this flywheel for AI. AI amplifies all of that. I think I'm -- when you think about AI in general, there's a thought, and I know we had conversations in the market about what does it mean for your business and how it affects your revenue streams and all these sort of things are Look, I think that AI raises the bar on static much in the sense that static knowledge information data is ubiquitous. What separates us now is our proprietary data. And proprietary data is accumulated and masked through operating, through being involved in the deals to recording the under bids to managing the work order to managing the 30,000 projects around the world. So we have this proprietary data set that is compounding on a daily basis that I believe strongly and holdheartedly, separates us from others who don't have that that data flywheel. And so it's having quite a dramatic effect in our business, not just in how we do business, but in the -- how we can help our clients see around corners. How we can leverage that data, which, as I said, we weren't always entirely sure how -- what the value of it would be, but also how we run our businesses in the -- just to give you an example in the REMS business. We've because we codified how we do things because we standardize our operating processes, we could map those processes end-to-end in a consistent manner. Once they're mapped, you can see which elements of them can be automated or identified if that's even a word. We have more than 100 agents deployed in the business now across our core processes. And this is not about sort of replacing people or wearing a badge of honor the number of -- the fewer number of people that are -- it's quite the opposite. And so -- in some markets, for example, one of our most significant constraints to growth is availability at talent. Tokyo as an example, in project management. So if we can increase the capacity, if we could open the aperture of our people by augmenting them with agents, with AI agents, I think it's an extremely powerful growth lever in the business. Yes. Let's dig a little bit into AI. I mean, it's not a surprise to anyone that we had some and face some disintermediation concerns that impacted our industry and many other industries earlier this year, how do you think about the long-term risks of AI to your business? I firmly believe it won't disintermediate I believe it actually widens our moat. I touched on some of this, Sean, the notion of the asymmetry of information between those who perform the task to execute the task, who are involved in the project and those who don't get amplified over time. I'm super excited by the ability to leverage that proprietary data and how it separates us from the rest, it's happening in every walk of life. If I have to get medical advice. I'm far better prepared based on my own AI research and help going to see the specialist than I was a few years ago, which means the value created by the specialists. I go to see the bar is raised the bar has raised based on experience, based on volume of what he or she is working on. The same is true in real estate, the more ubiquitous standardizati data becomes the more premium there is, I think, for proprietary owned data pertaining to the work you actually do. Organizing data in a way to be able to fully leverage that has taken effort and work. And it's been difficult to do hard, hard yards. But the advantage of that, I think, is quite profound.

Have you seen any signals of fee compression across the business? And do you have any concerns of that as a risk when you're thinking of the future of these.