JLL CEO Ulbrich on the Global Commercial Real Estate Landscape

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2:15Christian Ulbrich:You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Let's check in on the real estate market and specifically commercial real estate. We're joined now by Christian Ulbrich. He is the president and CEO of JLL. He is joining us now on Zoom from Frankfurt, Germany. Christian, great to have you here with us. And you have a really unique perch, of course, a very global perch when it comes to the global commercial real estate market. And so with that in mind, how does the U.S. stack up versus the rest of the world? Is this one broad picture that you can paint with a broad brushstroke?

2:54Or how much dispersion is there when you take a look globally? Well, when you look at the Western mature economies, there's the absolute performance and there's the relative performance. The absolute performance of the U.S. is OK. A, it's improving over the last couple of quarters against what we have seen during the drop at 23. But then there's also the relative performance against the other Western mature economies. And compared to that, the U.S. is doing really great and is an attractive area for investment for international investors. Are there parts of the market that you see, I don't know, better set up to succeed, whether that's manufacturing, industrials, office?

3:34Where are you seeing the strength right now? Well, again, on the offices side, we saw a really deep trough post-COVID and the discussions around what is the need for offices going forward. But what we have seen over the last couple of months that more and more of the large corporates are asking their people back into the office. In fact, when you look at the Fortune 100, more than 54 percent of the Fortune 100 companies in the U.S. expect their people back into the office for five days a week. And that has obviously resulted in a steady increase in demand for high quality office space. And as we are coming from a very low base, there is still a lot of runway for the offices sector.

4:19With regards to industrial, usually a very strong sector, but still a little bit shaky from the impacts, the unknown impacts from the tariffs around the world. So that is still something where we hope that we get a little bit more certainty into the market and then that asset class will recover as well. Well, Christian, you talk about the return to office post-COVID. Obviously, top of mind for investors, consumers and managers is the impact of AI. How are you seeing companies within office thinking about whether or not they can reduce their in-office footprint, not just kind of to account for people returning to the office, but if you're implementing AI and you need less white collar jobs, presumably that means you need less office space?

5:02Yeah, that is obviously a big discussion. I would say this is still too early to really make clear predictions what's going to happen. At the moment, it doesn't have any negative impact. In fact, you can argue it's at the moment almost the opposite for the U.S. at least, where we have a lot of investment into AI and a lot of new staffing coming into the tech companies. But going forward, that could become a topic. But as I said, we are still in the early innings where AI is really showing its impact. And so we cannot say how that will play out longer term. Yes, certainly a lot of investment into AI.

5:42Still unclear, of course, what that means for the worker and the buildings that they work in. But I want to wrap in Federal Reserve rate cut expectations to this conversation. It seems like a done deal that we're going to get a rate cut from the Federal Reserve in less than two weeks time. What happens for the rest of the year? Unclear. But how is that conversation and the shifting rate cut expectations sort of translating into what property owners are considering doing with their real estate? Well, simply speaking, when you have interest rates expected to come down, that will have an impact on pricing because the cost of capital for those real estate investors will come down and therefore they can afford higher pricing.

6:28And we had that debate now for many, many months. First, whether it will come further up and then when it will come down. Usually, the smaller changes in interest rates and especially the ones which are expected don't have a massive impact because people are adapting to it. What the market doesn't like is any rapid movements and especially those unexpected movements. So going forward, those one or two rate cuts, which are now expected for this year, they will support the overall kind of environment for real estate investment, but it will not have a massive impact. Yeah, well, one thing we were talking about at the top of the show is the impact of kind of immigration and the lack of immigration or some of these ICE raids and how that impacts manufacturing.

7:17What's your read of building and investing in Donald Trump's kind of push for manufacturing and bringing manufacturing back to the U.S. if there's so much uncertainty around tariffs and the ability to actually get employees from other countries here in the U.S. to work? Well, that is certainly an aspect of uncertainty. I mean, before we had all those debates about terrorists to the U.S. or from the U.S. to other countries, we already had a shortage of skilled labor in the U.S. So that hasn't become much better since then. So for everybody who wants to invest into the U.S., the question, where will they find the skilled labor is a big debate.

7:58and the uncertainty now about immigration, not only the pictures we see on TV, but also the question around whether the most talented people around the world who usually aspire to come to the U.S. will see the U.S. as kind of their destiny or whether they want to have their careers elsewhere. It's now an open question. So whatever going forward helps to calm that situation down will obviously then also help to bring more certainty for those who want to invest into the U.S. We're talking to President and CEO of JLL, Christian Ulbricht. Christian, just want to ask about something top of mind here in the U.S.

8:35is potentially the IPO or re-IPO of Fannie and Freddie. How are you thinking about that? What is your view on the potential impact, not only as it relates to U.S. homebuyers, but the entire ecosystem as it relates to real estate, if these are two companies that end up getting out of government conservatorship and into the public markets? listen i think we will deal with that situation when they're a private company as we have dealt with the situation when they were a public company publicly owned company so it is a very important instrument for the u.s housing market it has plays a huge role and i'm sure that in any format of an IPO, whoever will be the owner of those entities will try to prevail the success of that instrument going forward.

9:26And so we see that relatively relaxed. All right, Christian, really appreciate your perspective. Great to get some time with you. That is Christian Ulbricht. He is the president and CEO of JLL, joining us from Frankfurt, Germany.

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