JLL CEO Christian Ulbrich on Smart Buildings, AI and Global Housing Challenges | Leadership Next

Key Concepts

• JLL's Business Model: A global real estate service provider offering end-to-end services from property development ideation to management and sale.
• Affordability Crisis: A global challenge impacting major cities, particularly New York, driven by the city's status as a global capital attracting significant economic activity.
• Vienna as an Affordable Housing Model: Praised for its high volume of affordable apartments, though the political allocation of housing is criticized.
• Company Housing Revival: A trend in Germany where companies are reintroducing staff housing to attract and retain employees in expensive urban centers.
• Regulation and Deregulation: Regulation can be beneficial if it supports goals but can hinder growth due to bureaucracy. Deregulation can be helpful if it doesn't lead to chaos.
• Housing Deficit: The US faces a significant housing deficit, estimated at 4.7 million units by 2025.
• Infrastructure Investment: Crucial for widening commutable areas and addressing affordability, especially in regions with underdeveloped public transportation like the US.
• Global Real Estate Opportunities: Europe is struggling, while the US remains a major growth opportunity. India is showing impressive development and competitiveness, becoming JLL's second-largest workforce base after the US.
• Democracy vs. Efficiency: Democratic processes can be slower than authoritarian models (e.g., China, UAE, Saudi Arabia) in development, but India is streamlining processes.
• Transparency in Governance: Western countries need to be more transparent with voters about difficult truths (e.g., longer working lives due to underfunded retirement plans) to remain competitive.
• Future of Work: Inspiring work environments are crucial for attracting talent and fostering learning, especially for younger professionals. The office experience needs to be reimagined.
• Office Market Trends: Top-tier buildings are experiencing high occupancy and rising rents, while older or fringe-location buildings face challenges.
• Building Amenities: High-end amenities are becoming more common in prime locations like New York, reflecting the city's global capital status.
• Global Talent: Young professionals worldwide share similar ambitions for global, professional environments and international mobility.
• AI in Real Estate: AI is transforming JLL's business by enhancing productivity through data analysis and process simplification. Initial ROI is seen in productivity gains.
• Sustainability: Deeply embedded in JLL's purpose, with science-based targets for carbon footprint reduction. Clients are increasingly focused on sustainability for business benefits, including cost savings and talent attraction.
• Future of Buildings: Buildings will increasingly measure everything, leading to more efficient operations and lower costs, though privacy concerns need to be managed.

JLL's Global Real Estate Services

JLL operates as a global real estate service provider, offering comprehensive services that span the entire lifecycle of owning or occupying real estate. This "cradle to grave" approach includes:

• Ideation and Planning: Assisting clients with initial development concepts and site identification.
• Project Management: Overseeing the construction and development phases.
• Tenant Acquisition: Finding and securing tenants for completed properties.
• Sales and Financing: Facilitating the sale and financing of real estate assets.
• Operations and Management: Managing the day-to-day operations and maintenance of buildings.
• Valuation: Providing annual valuations of properties.

JLL employs approximately 115,000 colleagues across 80 countries, highlighting its extensive global reach and operational capacity.

The Affordability Crisis in Global Cities

The conversation begins by addressing the significant issue of housing affordability in major global cities, with New York City serving as a prominent example. Christian Ulbrich, Global CEO of JLL, acknowledges that this is a global challenge, not unique to New York. He explains that while inhabitants desire affordability, cities like New York are global capitals that attract significant economic activity and attention, which inherently drives up costs. He emphasizes that there is "no easy answer" to this complex problem, and many cities are grappling with it without a clear, universally applicable solution.

Vienna: A Case Study in Affordable Housing

When asked about cities that have excelled in addressing affordability, Ulbrich points to Vienna. He notes that Vienna has a "massive amount of subsidized housing, communal housing," which contributes to a high level of affordability and makes the city "very livable, also for people with low and medium sized income." However, he expresses reservations about Vienna's model, stating, "I still don't like Vienna as an example, because they used it also as a political tool." He criticizes the past practice of allocating apartments based on political favor rather than need. Despite this, he concedes that the outcome of having a substantial number of affordable apartments is positive, preventing cities from becoming exclusively populated by the wealthy, which can lead to areas becoming "dark" and "not lively anymore," citing central London as an example.

Company Housing: A Revival

The discussion touches upon the role of private sector employers in providing affordable housing. While not a widespread norm in the US, Ulbrich notes its prevalence in other parts of the world. He highlights a revival of the "company housing" concept in his home country, Germany. Historically, companies like the railway and postal services provided housing for their employees. This practice was largely privatized in the 1980s and 90s. However, companies are now beginning to build staff housing again because they struggle to attract talent to cities like Munich and Frankfurt without it. These are described as "normal apartments" but are only available to those employed by the company.

Regulation, Deregulation, and Global Real Estate Dynamics

Ulbrich discusses the interplay between public policy and the private sector in real estate. He notes that regulation can be advantageous if it strengthens desired outcomes but can also act as a hurdle due to excessive bureaucracy, slowing down development. He points out that large companies like JLL are better equipped to navigate complex regulations due to their resources and expertise, suggesting that regulation can favor larger entities over smaller ones.

Deregulation, he states, can be "very, very very helpful, as long as it doesn't create mayhem."

Addressing the US Housing Deficit

Regarding the US housing deficit of approximately 4.7 million units by 2025, Ulbrich outlines several effective strategies and partnerships for scaling affordable housing:

• Public Infrastructure Investment: Investing in public transportation is crucial for expanding commutable areas. He contrasts this with the US's underdeveloped public transportation system, lacking fast trains that could significantly increase the radius of accessible living areas.
• Land Provision: Providing land for free to developers, coupled with rent control for its use, can create affordable space.
• Direct Subsidies: Financial assistance can be provided directly to support affordable housing initiatives.
• Streamlined Regulations: Simplifying housing regulations can reduce construction costs.

He mentions that JLL has worked on these issues in various cities globally, including Sydney, European cities, and Asian cities, all grappling with similar challenges.

Shifting Global Opportunities

The geopolitical landscape has led to a significant shift in real estate opportunities. Ulbrich observes that Europe is "struggling very much," with much of the activity now occurring outside the continent.

• United States: Remains the largest growth opportunity in absolute terms, despite not necessarily having the highest percentage growth.
• China: While still showing healthy percentage growth, it is declining year-over-year, and the real estate sector is facing significant challenges due to a past bubble.
• India: Exhibits "very, very impressive" development, with substantial infrastructure investment over the last decade. India is becoming globally competitive, taking over roles previously held by China in manufacturing and other sectors. The country also produces a large number of talented graduates, particularly in tech, making it a significant source of talent for JLL. India is now JLL's second-largest workforce base, surpassing China.

Learning from Development Speed and Efficiency

Ulbrich references a quote from the Fortune Global Forum in Riyadh: "other countries have learned to move along much faster and more decisively." He elaborates on this by comparing the development speed in democracies versus more centralized systems.

• China, UAE, Saudi Arabia: These regions have demonstrated remarkable development stories due to their ability to implement decisions quickly, operating within different legal environments where directives can be executed rapidly.
• India: Despite being a democracy, India has made significant strides in streamlining processes over the last 10 years. Recognizing that their previous approach hindered progress, they have implemented changes to provide better lifestyles for their growing population. While not perfect, this progress is considered "impressive."

He suggests that European leaders need to "digest" that their traditional operating methods will not sustain Europe's success and that they must "speed up."

Transparency and Difficult Truths in Governance

When asked about strategies Western countries could emulate, Ulbrich emphasizes the difficulty of conveying facts and truths to voters, especially with upcoming elections. He argues that leaders often avoid unpopular but necessary messages to avoid being voted out. However, he believes people are more discerning and can understand what works. He advocates for transparency, using the example of underfunded public retirement plans in Europe due to increased life expectancy. He states, "you have to work longer, full stop." While unpopular, this is a message people can understand. He believes that by being transparent about facts and presenting choices, societies can remain competitive.

The Future of Work and the Office Experience

The debate around remote, hybrid, and in-office work continues to impact commercial real estate. Ulbrich asserts that JLL has been considering the need for inspiring work environments for a long time, predating the pandemic. He was not concerned by headlines declaring "the office is dead" because he believes people naturally enjoy being around colleagues who inspire them and from whom they can learn.

• Learning and Mentorship: He highlights the importance of in-person interaction for learning, particularly for younger professionals. He shares a personal anecdote about learning client interaction skills by listening to his boss through a second phone receiver.
• Productivity and Collaboration: He argues that coming together in an office is the most effective way to be productive and advance, while still allowing for flexibility for personal needs like appointments or family matters.

Office Market Realities

Ulbrich observes that the "best buildings" in cities worldwide are experiencing high occupancy and rising rents, with a clear "lack of space" for such properties. The development pipeline for new office buildings, especially in the US, is at a record low. Consequently, JLL's teams are analyzing the "next layer of buildings" to see if they can be upgraded to meet client expectations. He notes that many vacant buildings are either outdated or located in "fringe locations" where companies no longer wish to establish offices.

Client Demands for Amenities

Regarding client requests, Ulbrich acknowledges the trend towards buildings with extensive amenities, citing the new JP Morgan building in New York as an example. He notes that such high-end developments are appropriate for global capitals like New York but might be "inappropriate" or "over the top" in other cities like Dallas or even Los Angeles, as they can create a sense of alienation if they are outliers within a community.

Talent Acquisition and Global Workforce Dynamics

JLL's global workforce of 115,000 people presents unique challenges and opportunities in talent acquisition. Ulbrich notes that young people worldwide share similar ambitions, seeking good education and opportunities in global, professional environments. Many hope for international mobility within the organization.

Economic Challenges in Germany

He discusses the economic difficulties in Germany, which has been in recession for several years, with its economy smaller than in 2019. This has led to employee concerns about job security. Ulbrich addressed this by presenting data on Germany's performance within JLL's "J10" (the 10 largest countries), encouraging collaboration and a focus on winning new business to improve individual and company performance. He reiterates the importance of transparency and treating employees as adults.

Leadership and Personal Values

Ulbrich shares insights into his leadership journey, influenced by his upbringing in a family that ran a timber import business. This experience instilled a "high sense of responsibility" from an early age, understanding the dependence of employees on sound business decisions.

A Defining Resignation

His hardest moment as CEO involved restructuring a small German bank and bringing it back to profitability. When the owners decided to sell the bank to a buyer he deemed unsuitable, Ulbrich resigned, even though he had "absolutely nothing to go to." He prioritized his personal values over a lucrative contract, a decision he considers difficult but ultimately correct.

Artificial Intelligence (AI) in Real Estate

AI is playing a "very prominent role" at JLL and is expected to become even more significant. Ulbrich explains that JLL is fundamentally a "data business," collecting, analyzing, and transforming data into valuable advice for clients. AI is highly beneficial in this context.

• Productivity Gains: AI is being used to simplify complex processes like leasing, selling, and financing buildings, driving productivity.
• Revenue Generation: While currently focused on productivity, JLL is seeing the "first products, the first agents, which are revenue generating," though this is still in its infancy.
• ROI: The primary return on investment (ROI) from AI is currently in increased productivity, with revenue-generating applications still developing.

Sustainability in Real Estate

Sustainability is "deeply embedded" in JLL's purpose: "shaping the future of real estate for a better world." The company has science-based targets for reducing its carbon footprint and is ahead of schedule.

• Client-Driven Sustainability: Clients are increasingly pursuing sustainability for business benefits, not just for public relations.
• Financial and Brand Benefits: Sustainable practices can lead to cost savings, increased profitability, attraction of better talent and clients, and enhanced brand reputation.
• Scope 3 Emissions: JLL is committed to net-zero and is closely monitoring clients' emissions (which represent JLL's Scope 3 emissions) to ensure their own targets are met.

The Future of Buildings: Measurement and Efficiency

Looking 20 years ahead, Ulbrich predicts that buildings will "measure everything which is measurable." This includes detecting individuals upon entry, tracking their location, usage, and time spent within the building.

• Operational Efficiency: This comprehensive measurement will enable significantly more efficient building operations, optimizing heating, air conditioning, and cleaning based on actual need, leading to lower operating costs.
• Privacy Concerns: While acknowledging that this can be "scary" and requires careful management of privacy rules, Ulbrich believes people will adapt to these technologies, similar to how they have become accustomed to other innovations. He anticipates the benefits will outweigh the initial apprehension.
• Facial Recognition: He foresees the integration of facial recognition, suggesting it will become more "delightful than Orwellian" as people get used to its benefits. He humorously recounts a personal experience with an outdated passport photo causing issues with Global Entry, highlighting the importance of up-to-date identification in a world of advanced recognition systems.