Jones Lang LaSalle | Notes from Davos

Christian Ulbrich
Chief Executive Officer, EMEA
Jones Lang LaSalle

Davos 2012 drew to its close over the weekend.  Saturday offered me a great opportunity to attend some of the panels that were covering more general topics.  One was around smart cities and I was frankly a bit disappointed at the level of discussion.  A couple of our Consulting colleagues from across the world would have been a welcome inclusion to inject a more forward looking view.  Probably another good example of where Jones Lang LaSalle can benefit the wider goals of the World Economic Forum by further increasing our involvement.

This year’s closing party was hosted by Brazil.  The video screens showed some fascinating images of the country which will certainly prompt a lot of people to plan a visit there.  Finally, on Sunday, there was a first opportunity to take advantage of Davos’ location in the middle of the Swiss Alps.  The weather changed to sunny and the set-up was just right for a perfect ski day.  Even so, this was still WEF town, so there were plenty of opportunities on the slopes and in the chair lifts to catch up with people you had met in workshops during the previous days.  Which leads me neatly on to a quick Davos 2012 résumé…

The real challenge for Europe

Unquestionably, this year’s main topic was the Eurozone crisis and its influence on the global economy.  It is fair to say that there wasn’t much evidence at Davos that the different views on how to deal with the situation have converged.  There seems to be a US view, a UK view and a Continental European view, especially if politicians or economists were on the panel.  Down on the floor of the Congress Centre, talking to business leaders, there was much more agreement on what needs to be done. 

The indebtedness of governments and their ongoing overspending has to change, but that is not the longer-term issue for the Eurozone.  Most business people were focused instead more on the productivity gaps between the member states.  If a country like Italy has a productivity gap compared to Germany of roughly 30%, it will be very difficult to close.  Even if Italy makes 3% progress every year and Germany does only 2%, after ten years the difference in productivity would still mean that Italy is 23% less productive than Germany.  Why is that so important?  Because productivity decides where jobs will be in the future.  Currently politicians debate over the short-term threats to the Euro.  Medium-term, they want to develop a fiscal union and create a similar tax regime, have the same labour laws and regulations.  None of this will help to balance productivity within the currency union.  The benchmark for this should not simply be the best country within the Eurozone, but the best country in the world.  At the end of the day, Europe and the Eurozone will only be successful if we are able to get people into work.  Youth unemployment rates, such as those we see in Spain and Greece, are not sustainable.  I would make a very strong case for a bigger focus on the question of how Europe can create more jobs, before we spend too much time on the slightly academic question on whether capitalism has come to its limits.

The real estate opportunity

You think I’m getting off track?  Well I am happy to bring my résumé back down to real estate and infrastructure.  Anyone who has enjoyed the arrival at JFK airport in New York, taken the cab ride downtown and then walked the streets of Manhattan, knows that even this main window on Western capitalism, the business centre of the world, is hampered by disadvantages of an infrastructure which better suited the last century.  All of us could give plenty of similar examples and the same applies to real estate.  How many office buildings are offering efficient work space and have a low or even positive carbon footprint? How many products are produced in buildings which are completely outdated and create additional cost for extra handling and in-house transportation?

The biggest challenges arising from a strongly growing world population, after ensuring sufficient food and water, are getting people into work and protecting the environment.  Think about the subsidies the Western world is spending for questionable goals, for example, in the areas of agriculture or coal mining.  If we were to redirect half of all Western world’s subsidies into infrastructure and carbon neutral real estate projects, we would get many millions of people into work, make a significant impact in reducing the global carbon emissions.  At the end of the day that would probably also help in regards of food and clean water for the poorest.

So, if some of you have asked yourself, what can Jones Lang LaSalle do in order to help to overcome the current economic crisis?  We can all help to get that message out, at Davos, at any other conference or when talking to your clients.  Building best-in-class infrastructure and greener buildings will bring people into work and will then raise productivity and help to protect these jobs for the future.

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Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

It’s the end of my first trip to the World Economic Forum and I’ve been struck by how open and unassuming most attendees are.  People are here to advance their agendas, make connections, enhance relationships, learn, and contribute to helping improve the state of the world.  One moment you can find yourself sitting next to the former Finance Minister of Canada, and the next you are chatting with the Chairman of a major investment bank who is a former Treasury Secretary.  The next day, you can be working at a table discussion with the CEO of a Fortune 50 company after eating breakfast with the Chairman of one of the world’s largest global banks.  At Davos, it appears, just about everyone who attends is on equal footing.

Some clear themes resonated throughout the conference:

The benefits of a common market outweigh the challenges that Europe is currently facing, but some structural reforms need to occur to enable the EU to function effectively and competitively.  The current disconnect between fiscal policies determined by each member nation and a region wide monetary policy is one of the key issues that needs to be addressed.  There is broad agreement that labor reforms are high on the priority list as well. 

The Asia Pacific region is particularly well positioned to prosper in the coming decade.  China’s growth engine creates positive impacts across the region, and while individual agendas drive the thinking of each nation, there appears to be more commonality of thinking across the region than at any time in recent history.  Our competitive position in the region bodes well for our business in the coming years.

Concern over tension in the Middle East is clearly common, with a universal desire to see diplomatic solutions to the current challenges.

Social media has empowered individuals in a way that creates incredible social force.  Individuals now feel the ability to “have a two way conversation” instead of feeling unable to effect the course of events.  Examples range from purely commercial (think about high profile customer revolts to recently announced changes in pricing models, causing companies to reverse course and rescind the changes) to political regime change (think Arab Spring, the effects of which continue to ripple across the Middle East).

As I wrote in my first note, the mood of the conference was upbeat and determined.  I think that bodes well for our business.  In many conversations I had, no corporate occupiers were in the midst of “pulling in their horns.”  They are on the front foot, pursuing their agendas in an environment where uneven growth prospects around the world require agility, playing to our strengths.  Investors are seeking good opportunities to place their capital, and they view real estate as a desirable asset class – again, a mindset working in our favor.

Confidence in the long term direction of the global economy remains strong.  The only question mark appears to be how long it will take to fully rebound from the effects of the financial crisis – something we’ll all be watching closely.

Finally, Davos has been a great opportunity to make new relationships, to reinforce existing ones, to learn, and to contribute to the global agenda of improving the state of the world.  It’s a long six days, but it has been well worth the effort.

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Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

One interesting note – I have received two business cards in Davos with Braille printing in addition to the standard printing.  I asked one of the cardholders, the CEO of S.C. Johnson, why his card was imprinted with Braille.  He replied: “We believe strongly in diversity and inclusion. These business cards are simply one way of communicating that commitment.”  His response really made me think.  What a simple yet powerful way to communicate a commitment to providing opportunities for all people.

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Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

There is no question that a very strong underlying theme of the World Economic Forum is how we can make the world a better place.  How do we do well by doing good? 

Nowhere was that theme more evident than in the session I attended on sustainability, titled “Reshaping Green Agendas.”  A panel of experts from China, Korea, Brazil, U.S. and the Netherlands talked about the challenges and opportunities we face in striving to lessen our impact on the environment. One interesting question came from the audience essentially asking: Is all this effort really hopeless?  What will it take to raise sustainability in the consciousness and on the priority list of the world’s population?
 
My personal answer to that question came from a dinner I attended the night before, at which an historian tried to put our current predicament in some sort of perspective. In relating this perspective, my figures may be off slightly, but not by much.  He said that the planet Earth has been in existence for more than a billion years.  The human race has been in existence for approximately 10,000 years – a miniscule fraction of the Earth’s life span to date.  And yet the pace at which we are consuming the Earth’s resources is accelerating at almost a vertical rate when viewed on a relative time scale measuring the Earth’s life span.  The historian made the point that the human race is the only species known to be destructive to its natural environment.
 
Now, the key is not to take this as “doom and gloom.”  Rather, it’s to provide a context for the efforts around sustainability.  We can make a difference in the world, and we can do so by helping our clients consume less energy, operate more efficiently using less resources and follow the same practices ourselves.  Doing so will be good for our clients, good for the firm, and good for the environment.

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Christian Ulbrich
Chief Executive Officer, EMEA
Jones Lang LaSalle

After a shockingly early start to an IHS Forum presentation on the global economic outlook, which included some very interesting information on future energy supplies, I moved on to join the latter part of a breakfast panel discussion entitled Can Germany save the Euro – and find new growth beyond Europe.  In many ways, this was a continuation of a prevailing theme of this year’s World Economic Forum, which has had Europe’s economy firmly under the spotlight.  Even so, this was the first occasion – in the sessions that I have attended – in which that spotlight had been thrown so shamelessly on Germany and its economic future.  No surprise on the outcome.  There seems to be a UK view on Germany and a Continental view on Germany and, as you would expect, a German view on Germany.  That illustrates one of the biggest challenges for Europe moving forward.  As long as Europe does not agree what causes the issues, it will be difficult to agree on the medicine.  Though Europe is the hot topic of this year’s conference, attention shifted for a while to one of the most interesting geographical areas of the future.  Its wellbeing is of the highest importance to Europe.  As you may have guessed, I’m talking about North Africa.

Egypt, Libya, Tunisia and Morocco are the most important southern adjacencies to Europe and were represented by high ranked politicians.  Unfortunately the Congress Hall was far from crowded and the debate they had made our European problems look like a piece of cake.  Still, I think it worthwhile highlighting one particular comment: The elephant in the room was the question of whether these countries will move towards more fundamentalist Islamic politics and to what extent this will impact business.  The answer to this question, posed by a European journalist, came as quick as a pistol shot.  The Western world wasn’t ashamed to do business with autocratic leaders.  Now, after North Africa has gained new governments based on democratic elections, with an outcome reflecting the existing societies, businesses should feel more comfortable than ever in doing business within the region.

People, jobs and cities

Over lunch I was able to participate in one of the most fascinating workshops of the last couple of days, taking the theme Business as the driving force of growth and employment.  Especially striking was that it gathered some of the most prominent global CEOs together with more ordinary managers like me, trying to come up with ideas for the private sector as well as the policy makers in order to really make progress in creating more jobs around the world.  No blackberry checking in between, just serious work.  I was strongly reminded of university times; great team discussions and clear pressure to come up with a result.  The session was confidential but I’m sure that some of the ideas discussed will find their way into real life.

For now, the afternoon and early evening is filled with a whole series of client and journalist meetings, which provide a wonderful collective illustration of the ideas, energy and sheer enthusiasm centred in this little Swiss town at the moment… and some great new business contacts too!  Before I finish this latest blog, for those who have been asking, here is the link to the research report we published this week on A new world of cities – Redefining the real estate investment map which I mentioned in an earlier blog.  Very timely reading, given much of the debate here.

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Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

Fascinating session in the afternoon about the future of urban development. Engaged in the discussion were the mayors of Chongqing, China, and Tianjin, China, the Governor of Bangkok, and the Vice Mayor of Moscow, as well as a number of people from the private sector and non-government organizations. 
 
One of the most interesting aspects of the conversation was how growing resource scarcity will put a premium on sustainable development over the next decade.  Citing the construction of a hospital over a body of water rather than creating a landfill upon which to build it, the Governor of Bangkok commented that “Man’s instinct is to fight nature. Perhaps we would be better off if we learned to live with it.” Very true!
 
The challenges we see in the U.S. around urbanization were put into perspective when we heard the mayor of Chongqing talk about their challenges maintaining quality of life in the face of rapid growth. Chongqing adds 600 cars to the road EVERY DAY, added 150,000 apartment units last year and has 1,000 construction sites in the city currently…the pace of growth boggles the mind! They’ve also added 400 parks to the cityscape, and are currently constructing two bridges and two tunnels over and under the Yangtze River to ease traffic congestion.
 
Urbanization is clearly not a thing of the past.  Our firm’s latest report, A New World of Cities, continues to see 50 percent of global commercial real estate investment concentrated in only 30 cities around the world. But we also see this as a decade of change as investors widen their horizons. In particular, China’s cities – and Chongqing and Tianjin are the world’s two fastest growing cities by GDP – offer massive potential as they’re transformed by unprecedented development.
 
While no one can predict the future, it is clear that both the private and public sectors will have critical roles advancing the agenda of urbanization – and ensuring it’s done well and sustainably. It’s an enormous challenge, one that Jones Lang LaSalle has played an active role in, but also one that all of us have to be focused on.

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Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

One of the major themes of the World Economic Forum is the effort by countries to harness their resources and make the most of their potential – both economically and socially. That theme was front and center in a meeting a small group of us had with Mexico’s President Felipe Calderon.
 
Mexico is a country whose future is critically important to us in the Americas. Not only does the firm have a strong and growing business there, but more than 80 percent of that country’s exports go to the United States, many of which are destined for our U.S.-based clients. A vibrant Mexico is important to clients throughout the Americas – indeed, throughout the world.
 
I came away from the session with President Calderon feeling positive about his country’s prospects and about our firm’s commitment to Mexico.
 
It’s clear that Mexico is intently focused on growing its economy, improving the quality of life for its population, and attracting investment.  The country has made a major investment in education over the past decade.  A little known fact:  Mexico graduates more engineers annually than does Germany! 
 
President Calderon also recognizes the need for Mexico to remain competitive from a labor standpoint.  There is legislation currently winding its way through Mexico’s Congress which will increase the flexibility of Mexican labor laws.  Finally, President Calderon recognizes the importance of Mexico being viewed as a positive investment destination, where the rule of law is supreme.  In fact, when Calderon took office, there were 6,000 members of the Federal police force.  Today, there are 36,000.
 
Challenges remain – what country doesn’t have challenges? – but hearing from President Calderon directly gave me confidence about the future and confidence about the prospects of our more than 400 colleagues in the Mexico.

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Christian Ulbrich
Chief Executive Officer, EMEA
Jones Lang LaSalle

After a typically busy Davos breakfast, the morning adrenaline rush really kicked in with a quick sub-zero dash between venues in time for my 8am in a very lively work shop debate called Harnessing the hype: Sustainable and impact investing.  This was two hours of truly formative thinking and I was greatly impressed by the contributions of my fellow panellists and the opening speakers who included Muhammad Yunus, chairman of the Yunus Centre, based in Bangladesh.
 
Impact investing is rapidly emerging as a significant asset class, perhaps worth over $1tn within the next decade.  From the real estate perspective, this is exactly what our global sustainability experts have been advising our clients – and telling us.  I can tell you we are listening – in fact, everyone in the room this morning seemed switched on to the imperative of tackling three major questions: 1) how to meet increasing expectations for social as well as financial returns, 2) how to leap the hurdles that can slow impact investment, and 3) how to design investment strategies that do well by doing good. This will soon become a mainstream priority within the real estate sector.
 
Where next for capital markets?
 
Then it was my turn in the chair to moderate a lunchtime session on Reinvigorating capital markets for infrastructure and real estate.  Against the backdrop of sovereign debt worries, hamstrung political systems and fragile areas of economic recovery, we asked what new models can real estate capital markets turn to; what new investment structures and capital sources mean for long-term sustainable development and how future bubbles can be detected and mitigated.
 
Two wonderful opening speakers set the stage: Professor Markus Brunnermeier of Princeton University and Professor Nouriel Roubini of the Leonard N Stern School of Business in New York, and we also heard fascinating insights on China from Professor Deng Yongheng teaching at the National University of Singapore.  Highly relevant to this debate, Jones Lang LaSalle also contributed some topical thinking on identifying and managing systemic risk, part of our role in building the agenda for these World Economic Forum real estate and urban development sessions.  Unfortunately the panel debate did not come up with ground-breaking new ideas.  Markets around the world are in different cycles.  Some are close to overheating, some have plenty of finance and some are facing a severe credit crunch.
 
Best practice from the UK
 
After Angela Merkel’s opening address yesterday, Britain’s David Cameron, took to the conference platform here today calling for bold and decisive action from his fellow EU leaders in resolving the Eurozone financial crisis.  Unfortunately I could not attend, but that is part of the Davos challenge. You have so many fascinating choices that you often wish you might be in two places at once.  Talking about choices, yesterday evening I chose to accept a dinner invitation from Barclays Bank.  Quite dangerous, as it was taking place high up on Schatzalp, not an easy place to run away from if you don’t enjoy it.  What can I say, it was fantastic.  Good food, great company at the table but clearly the highlight was London’s mayor Boris Johnson.  He took questions from Bob Diamond, Barclays’ CEO, as well as from the dinner guests and he was outstanding.  Still, carrying a German passport, I have to say that I almost got a little jealous, as I haven’t met a mayor like that in Germany yet.
 
I was so impressed that this afternoon I took a very long walk (transportation isn’t that great at Davos) in order to get to the UK afternoon tea invitation, hoping to have more of Boris or at least find a Boris bike to get back to the Congress Centre afterwards.  Neither were to be found, so I had to walk again and soon after I was passed by David Cameron, walking without a coat in the middle of January and his Brooks deep in the muddy, melting snow of Davos mainstreet.  No challenge can be too big for the UK with such a brave leader.
 
The New Europe
 
Certainly the highlight of the day was my final session.  Remodelling Europe, another workshop session, where you picked your table and worked in groups of 6 on ideas to improve Europe.  Each table had a moderator, which included the Dutch prime minister, the Swedish minister of foreign affairs and other high ranked European politicians or business leaders.  What a great experience and more importantly the tone was very positive.  The belief in Europe’s ability to overcome its challenges was strong.  Again best practice came into play, just as Mrs Merkel proposed yesterday.  Different to her, one table was prepared to give examples of best practices for most European countries.  I could fully buy into taking Finland’s efforts around scaling up the educational system, I was a bit disappointed that Germany was just being described as offering great engineers.  What really caught me by surprise was that for Spain they came up with “best in class in football” and for Italy even shorter “best pasta”.  Not that I would not agree, but none of the Spanish or Italians in the room jumped up to argue the description.  Maybe they thought, at least we made the list.  Greece wasn’t mentioned at all.

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Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

I also wanted to mention the first session I attended today titled “The Social Media Context.” Not only were there a number of interesting messages to take away, but imperatives for our business – any business, really – as well.

One insight was that social media has gone from being a toy to becoming a tool.  And it’s not just a tool for commerce and business (who knew that Macy’s gets more online traffic from Facebook than Google?). It’s a tool for reform and for fostering more accountability and transparency from governments.

The other key message for me is that the future of social media is mobile, mobile, mobile!  Sounds a bit like the secret to real estate is location, location, location….but the experts predict that people will increasingly interact with each other and connect to the internet via mobile devices.  A fun fact: of the 500 million internet users in China, fully 70 percent of them access the web via mobile device.

These are important currents that we all need to jump into to help take our businesses to the next level. It’s clear we need to fully embrace mobility – a point driven home every time I tweet here from my iPad.

For additional thoughts from Peter on social media, watch this video.

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Categories: World Economic Forum 2012

Peter Roberts
Chief Executive Officer, Americas
Jones Lang LaSalle

Day one at Davos and, overall, the mood strikes me as upbeat and determined.  Determined to find a solution to the crisis that currently grips Europe.  Determined to find a way to ensure that the benefits of capitalism do not sow the seeds of inequality.  Determined to find ways of, as the theme of the World Economic Forum states, “improving the state of the world.”

That was evident in two sessions I attended today about parts of the world our business focuses on a great deal – Latin America and Europe.

First, the panel I attended on “The New Context in Latin America.” The panel shared an interesting perspective: while the region’s GDP growth rate of 3-4 percent over the past several years looks good in comparison with much of the rest of the world, it is disappointing from a regional expectations point of view. There was also a fair amount of agreement around the fact that the key to capturing Latin America’s promise lies in improving labor productivity (a theme which will arise in the European debates, as well).

Two of the more interesting topics debated:  One, how long Latin America can be “the region of the future”  and, two, an interesting debate centered around the benefits of State capitalism, under which previously state-owned enterprises are “floated” through a public offering and become publicly-held.  Do these enterprises with their private ownership yet public history and state sponsorship provide a good model for growth, or do they crowd out private investment, entrepreneurialism, innovation and competition? I’m interested in where our experts in the region come down on these debates – and if you have an opinion, please leave a comment below.

Overall, the mood was bullish on the region, with acknowledgment that there is much work to be done relative to reform if Latin America is to make the most of its potential.

The discussion around Europe was just as interesting. There, the consensus was clear: frustration over the lack of progress in finding a “fix” to what ails the region. However, one observer noted that part of the reason for lack of progress could be fundamental disagreement around its causes.  Three very clear schools of thought about what those are arose: lack of labor productivity, lack of growth, and too much government spending.  I think the reality lies somewhere in the fact that all these factors, along with others, played a role in contributing to the situation we’re in.  However, I did find it interesting that Angela Merkel, in her opening address to the forum, did cite the labor productivity issue as one that holds the key to Europe’s revival.  She called for a gradual migration to a “best practices” model (no one questioned her as to which country’s practices she thought were best!) where labor is more mobile, more adaptable and more competitive.

The panel on Europe concluded that Europe will find a way through its current predicament, and the majority felt that the pain of seceding from the EU would be worse than the pain of the austerity plans needed to help “right the ship.”

For additional thoughts from Peter on Europe, watch this video.

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Categories: World Economic Forum 2012