Episode 449: JLL's Richard Bloxam on the Foundations & Evolutions of Real Estate Capital Markets

Thank you for having me.

Well, I think that the industry has always been a data-driven industry way back when, whether that was shuffling bits of paper around with data on it. And really, in the Capital Markets part of the business and the JLL enterprise more broadly, it's about how do you bring that previous historic analog approach to data to something that's much more digitized. Essentially, that's what we've been doing in the Capital Markets business: ensuring that we're capturing the data in the processes that we run and then leveraging that information to provide better insights for both our teams and those teams then bringing those insights to our clients. So it's a digitization of the real estate industry and the transaction processes within it.

I think you have to look at what it is that makes you somewhat different, how do you be famous. And if you look at us as an organization, we've been established for a very long time, we're over 230 years old, and we have a platform that goes across geographies as far away as Australia, New Zealand, all the way around the world. And I think that is one thing that makes us genuinely different and unique. And then it's the culture. Essentially, whatever technology and data you want to put into an organization, if you don't have a culture where people are willing to share information and work together collaboratively, and I think that's a defining characteristic of the JLL business brand, of the people that work there.

I think it comes down to leadership and ensuring that you have a pretty good discipline to how you bring people into the organization, how do you ensure that they understand what the organization offers and be really clear on what kind of cultural norms and behaviors you expect of your teams. This is not supposed to be a straightjacket, it's supposed to be an enabler. And we really aspire to providing the right environment for our people to be as successful as they can be and to provide clients with simply the best service and advice in the industry.

I think I would repeat again about culture. I think that culture is also embedded in the Capital Markets business where you work collaboratively together as teams, you're not competing with one another. I think it's a really important part of our business. Secondly, you have a willingness to be a pioneer. You know, the real estate industry is often a slow-to-move industry, and technology doesn't immediately stand out as an obvious angle to change the industry. Within Capital Markets, we've been pioneers in adopting technology to ensure our people have access to better quality information and can provide genuinely new insights to our clients. So I think those are two areas. I think the other is that real estate has become an increasingly sophisticated asset class. The assets themselves are becoming more operationally intensive, and the range of capital solutions that clients need and that we can provide are much broader now. It's not just 'I can sell your building, I can finance your building'; it's 'what capital solutions do you as a client need?' And we've been building up that expertise, whether it's from investment sales specialist asset classes through to real estate investment banking and derivatives. I think it's that holistic view of capital and how it plays a role in real estate and pricing that is truly the differentiator for our business.

I think it's great to have a date that gives you a little moment to pause and reflect on where you've been, the journey you've been on, and who's helped you. We're standing on the shoulders of many people that came before us. It's also important for us to note that it's the 25 years of being a listed company, but that's part of a journey that started in 1789 as the organization. I think that reminds us that it doesn't really matter what the world throws at us; we have an ability to be agile and shift and adapt our business and our business model to suit those needs. So I feel like it's a really great little reminder point. But we don't want to dwell too much on the history, really. We're here to try and shape the future of a better world for the real estate industry for the next 25 years. I'd love to do the next 25 years; I'm not sure whether I'll be on the podium then, but it's a great feeling.

I think the great gift of being able to work in different countries is to understand that different countries have different cultures. And as you're working in a real estate industry, those cultures pervade how people do business. It removes an assumption that it's just always the same, which keeps you on your toes. And I've always enjoyed that. To me, whatever industry I had been in, as long as I was working with people from different backgrounds, it's just more interesting. And different cultures also come up with completely different solutions, and that's what makes origination of great ideas exciting. So I've loved it. It's not for everyone, but if anyone wants to do it, I'm happy to be an ambassador and sponsor for that. I think it's just a great opportunity, and JLL has given me that opportunity, so I'm very grateful.

I was teaching English actually in Germany and Austria after I graduated. And I just happened to have an old graduate kind of brochure — in the UK they used to call it the milk round, they'd go around and give these brochures out — and I happened to have one with me. So I'd love to say it was some kind of great intent for me to join, but that would be lying. I happened to have that brochure. But when I then applied and started really digging into what that business did and how it was expanding geographically, I spoke German so I wanted to use languages. I just feel really fortunate that I've managed to end up in this really terrific industry with great people.

No, I think it was more a reflection of the time. I graduated in 1992, and the economic environment pretty much around the world, but particularly in the UK, was not great. And I think the truth is that I actually hadn't decided what I really wanted to do, but I did know that I wanted to speak languages more fluently. So it was a kind of opportunity and vehicle to do that. I loved doing it, but I probably discovered it wasn't a vocation; it was a great experience.

I think there have been a number of big macro trends that have really shaped what real estate's role in the broader economy has become. Urbanization is a phenomenal macro trend: every day people are arriving in cities looking for somewhere to work, somewhere to live, somewhere to eat, somewhere to play, and that immediately unlocks the need for real estate to provide solutions to those people. I think you've also seen a gradual sophistication of the financial markets. It doesn't matter if you're dealing with equities, bonds, or the alternative asset classes; all of those have been on a journey to greater transparency, more information, and real estate's been on that journey too. And we've had a really great run that's seen big pension systems and insurance companies around the world increasing their allocations to the asset class year on year over many years. That allocation journey is still ongoing. And so when you have bigger institutions all looking to get access to this asset class, that provides a great backdrop for professional organizations like us to help them on that journey. Right now, it's interesting to see how much private wealth and family office capital is looking to get allocated to the asset class, so that's keeping us on our toes, making sure we're able to solve opportunities and challenges for them as well.

Oh sure. I think in the same way that the advisory world has had to become more sophisticated, add more value frankly to warrant our client trust, I think it's because the clients are also on a journey of understanding that to drive outperformance from the assets they own, they need to get more granular, they need more support. And that's really what the enterprise approach from JLL brings to bear. Capital Markets is just one part of what a client needs to solve for. There's a lot of focus at the moment on how you drive net operating income improvements, and that doesn't happen by accident; people have to actively drive those outcomes.

I think Christian's approach when he came into the role was to really look at some of the bigger macro changes in the world. There were two particular trends that I think he had great foresight to identify. One is how impactful technology would be on the world, but also how real estate could embrace it. Your leadership is defined by kind of key decisions and moments, and I think the perspective to say technology is going to be really important for our industry and that we need to invest in it, and that it'll take time for that investment to bear fruit, has fundamentally changed how we think about opportunity and client service. And on sustainability, we have a very strong advocacy that we have a responsibility in a highly fragmented ownership and occupier world. Groups like us touch more buildings than any single client can, and therefore we feel we have not only an opportunity but also a responsibility to help create a more sustainable future for people and the planet.

Yeah, we organize our business essentially through activities. The vertical that I look after is really around transaction and pricing of real estate. But as you would know, you can't possibly do that in a kind of isolated silo; you have to do that with collaboration across all the business lines. And if you look at Capital Markets itself, I'll go back to the point I made around capital solutions. If you're just going to a client and saying 'I can sell your building' or 'I can do this,' then you're probably missing the broader conversation. It doesn't mean that you need to be any less capable or great at doing that execution, but it's more the strategic relationship that really counts. Our clients expect us to bring more than just 'I know this' or 'I can do this'; they expect us to bring the wealth of knowledge that JLL possesses to bring out great outcomes. We do a great job; we've got plenty of room to do that even better and to grow.

Well, first of all, across the whole enterprise we have a foundational platform called Falcon, and that is what all our AI applications are then built above. The way I would visualize it is like a building, and it's the piles of concrete in the ground that help to develop on top of that. Then within Capital Markets, we've got a particular suite of products that are leveraging machine learning and generative AI that allow our producers, our client-facing advisors, to leverage insight and information that would be difficult for them to assemble completely on their own. So it's very much an enabler to allow our people to do more, to be more effective, better use of their time so they can spend more time with clients. Identifying what's going to be a likely trade coming up in the future would be one example. But that's across the whole firm, looking at how you can leverage that. And we're still nascent in AI across any industry, and that's no different in real estate. I'm sure there's a lot we don't know and a lot we'll discover. If I'm sitting here in a year's time, there'll be a lot more that we would talk about.

I'm definitely more on the excited rather than the fearful. Human history is just a constant stream of innovation, and this is just one of those next steps. It's here, it's going to be part of how businesses operate, and I think it's a responsibility as a leader at JLL to ensure that we're addressing that opportunity in the most effective way. The real estate industry in particular is very every-building-is-a-little-different, and I think the role of the individual is going to remain pivotal in how we deliver outcomes. We see AI as an exceptional enabler of those individuals and those teams, and that's where our focus is. Our teams are very involved in building that capability. This is not something we're taking off a shelf and just giving to them; it's really a much more collaborative approach to creating solutions that our teams really need and are asking for.

Well, as I previously mentioned, I think when you're involving your teams in helping build the solutions that are going to make them more effective, that's key. It's not to say they're not affected today, but how do you get them to have even more insights, even more information at their fingertips? I think that's the way that we believe is most effective in creating a harmonious relationship between the technology we're evolving and the great people we have in the organization.

I think first of all, the commercial real estate world is now very broad, and offices is one component of that and certainly has attracted a lot of the headlines. When you look at the demand for offices, we're actually seeing really strong demand in global gateway cities in particular for the very best buildings. I think that was a journey that had already started pre-COVID, so COVID sped up that journey to what I would call a bifurcated market between those buildings that really will attract long-term tenants, providing the experience that's going to create the right environment for their businesses to be as successful as they can be, creating space for collaboration, space for mentorship. So I think that is an important factor. The numbers tell us that certainly in that category of office, there is strong demand. Now clearly there are some office assets irrespective of COVID that were never going to have a future, and I think there's an enormous opportunity for the industry to look at how you repurpose those assets, how do you use the good bones of those buildings to be something other than what they originally intended to be. So the write-off of the office was never an accurate view of the future, and it'll be interesting to see how companies' relative performance transpires over the next few years — those that have a largely collaborative-in-the-office approach versus those that have gone for a much more remote working approach. Different businesses will have better or different outcomes depending on what they need to achieve. So this has got a way to go, but certainly we're seeing resurgent interest from an investor aspect in investing in the offices sector as well, so that's another encouraging sign.

Well, I can't think of an asset class or sector in the real estate industry that had more thrown at it in the last sort of period: the global financial crisis, digitization, online retailing. I think what we're certainly seeing is that to a certain extent, online retailing has a saturation point that it seems to be reaching. There'll be better data out there than I'm able to share on this, but I don't think we're feeling that there's a significant extension of that online penetration. I think it's settling out. What we're seeing is very little construction in retail, very low vacancy, particularly here in the US. And when you had rents rebasing, you're actually seeing really great rental growth emerging in what is a low vacancy market. So I think retail is looking rosy, and it's certainly attracting a lot of capital both on the debt and the equity side. It's no longer the kind of slightly forgotten part of the asset class sector; it's really resurgent.

Yeah, it's kind of like patting your head and rubbing your tummy at the same time. Our job is to make sure that you're seeing global trends, macro trends, and able to serve clients at a global scale while still continuing to deliver outstanding local knowledge. Real estate in the end takes place somewhere; it's in a geography, and there's going to be local nuance that you have to bring to bear. I mentioned earlier that every building is a little different, and that little difference can make a huge difference when you're pricing or thinking about rent or future occupation. You need that expertise on the ground; you really do. I don't believe that you can be a great capital adviser in real estate if you don't have that granular knowledge. That's a key reason why we think the JLL overall proposition is well set, and hopefully our clients continue to see us providing additional value on the basis that we're doing that globally and locally.

Well, the challenge for the industry was essentially indigestion at how quickly interest rates rose on the back of unprecedented levels of inflation. Our industry tends to struggle when there are very significant and sharp changes in the cost of capital, and that takes a little while to digest and for repricing to take place. But there's nothing unusual in the cost of capital shifting; we've seen it over decades and decades, and the real estate market then needs to respond. If you look at the recent rate cuts, that's in line with inflation having come down, but also the Fed, the ECB, the Bank of England, the Bank of Japan are all trying to navigate that combination between keeping inflation under check but also providing enough room for incentivizing growth. Look, I think the real estate market and the activities we do tend to be much more reliant on a combination of GDP growth and interest rate stability. So less about actually what the rate is, but that the rate is stable. And we've been living through an incredible period of instability. The recent changes in the 10-year Treasuries are not something new, and we'll have to see how that plays out. But it feels like there is more momentum on both the lending and the equity side in the markets at the moment.

If that stability comes, investors also want a degree of confidence about where rates are going to be, and that allows them to make decisions. It's no different actually for corporates who are leveraging credit to grow their businesses. So we're part of that broader reliance on stability. Over history, when rates are stable and GDP growth is in place, activity seems to be significantly elevated. So it's pretty difficult to predict right now exactly where it'll settle, but if those two things hold true, then there will be more activity, and investors will be more active and more confident in the outcomes they can drive for their end investors.

I think we're taking a number of those strands that we've already been working on and embedding them even more deeply. I passionately believe that we need to be a capital solutions business, and so we'll continue to grow our capability to provide strategic advice across all capital opportunities and outcomes. I think the asset class range is going to continue to broaden and become more specialized, and providing that granular specialist knowledge is going to continue to be a really important part of us providing a service. And technology: this is not going to go away. I think you're either in and you're really committed, or over time you can run the risk of getting left behind. If you do that technology prudently and with collaboration with a great workforce, then I think you can really produce outstanding solutions for clients and outstanding results for the business. That's how I think it'll shape up.

I think again, a little bit more of the same. I think we've got a good formula. The macro trends are very clear for us. We want to continue to elevate the brand, continue to put our clients front and center of everything we do, continue to focus on having the very best people we can have in the industry, and then ensuring that they are empowered with great technology and adhering to the values and overall business approach that we believe is the right way to work with clients. I think that formula is a good one. I'm sure there'll be tweaks and changes as the industry evolves, so that need to always be agile and think of new innovations has to be a cultural norm. Change is ever present; you just have to be really good at managing it and not be scared of it, but embrace it. And I think our organization is really well set for that.

Well, I really appreciate the opportunity to have this chat, and yeah, I look forward to being there too. And maybe it won't be me, but at the very least I'll be cheering from the sidelines.