Earnings Call Transcript - JLL Q1 2024

Operator, Operator

Welcome to the Q1 2024 JLL Earnings Conference Call. My name is Benjamin, and I'll be your operator for today's call. As a reminder, the conference is being recorded. I will now turn the call over to Scott Ebinger, Head of Investor Relations. Scott, you may begin.

Scott Einberger, Head of Investor Relations

Thank you, and good morning. Welcome to the First Quarter 2024 Earnings Conference Call for Jones Lang LaSalle Incorporated. Earlier this morning, we issued our earnings release along with a slide presentation and Excel file intended to supplement our prepared remarks. These materials are available on the Investor Relations section of our website. Please visit ir.jll.com. During the call and in our slide presentation and accompanying Excel file, we reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures to GAAP in our earnings release and slide presentation. As a reminder, today's call is being webcast live and recorded. The transcript and recording of this conference call will be posted to our website. Any statements made about future results and performance, plans, expectations, and objectives are forward-looking statements. Actual results and performance may differ from those forward-looking statements as a result of factors discussed in our annual report on Form 10-K for the fiscal year December 31, 2023, and in other reports filed with the SEC. The company disclaims any undertaking to publicly update or revise any forward-looking statements. I will now turn the call over to Christian Ulbrich, our President and Chief Executive Officer, for opening remarks.

Christian Ulbrich, President and CEO

Thank you, Scott. Hello, and welcome to our first quarter 2024 earnings call. I'm very pleased with our first quarter results. We were able to grow both Resilient and Transactional revenue and turn that into meaningful profit growth. The year started with some positive momentum, highlighted by an increase in bidders and the closing of several large deals in North America. These green shoots encapsulate investors' willingness to deploy capital when market conditions warrant. However, once inflation data came in higher than expected and the hope for several interest rate cuts later this year diminished, real estate capital markets became much quieter again. In the first quarter, global commercial real estate investments totaled $135 billion, a year-over-year decline of 4% according to JLL Research. The pace of decline moderated in the quarter across the Americas and EMEA while Asia Pacific experienced its second consecutive quarter of growth. Debt market conditions improved in early 2024, both in terms of pricing and liquidity. However, commercial real estate markets have taken a pause over the last several weeks as lenders and investors adapt to a shift in the interest rate outlook. Lender confidence remains buried and it's strongest for industrial living and data centers, especially for high-quality assets at smaller deal sizes. Turning to office leasing. Activity improved in the quarter as compared with subdued 2023 levels. Globally, office leasing volumes increased 7% year-over-year according to JLL Research. Both the U.S. and Asia Pacific saw increases in demand as occupiers continue to upgrade to premium quality, sustainable space that improves the employee experience. In Europe, limited available space continues to dampen transaction activity. A number of large lease transactions improved in the quarter, but is still well below pre-pandemic levels. The global office vacancy rate ticked up 30 basis points to 16.5% in the first quarter, driven mainly by North America, where the market continues to process leases that require 10% to 15% less space. On the industrial side, first quarter leasing activity declined globally as decision-making slowed amid geopolitical and economic uncertainty. In the U.S., occupiers continue to manage through the record amount of space that was leased following the pandemic. Across much of Europe and Asia Pacific, a limited supply of modern, energy-efficient space is constraining activity. Our growth in average rental rates moderated across all three regions. Long-term fundamentals in the industrial sector remain strong, supported by near-shoring requirements and demand for high-quality sustainable space that allows for technology integration and automation. Finally, in the retail sector, consumer spending in international tourism remains resilient, supporting demand for space in prime locations. Turning to JLL. Our first-quarter results were driven by both revenue growth and the cost management actions we have taken. Collectively, our Resilient revenue base grew 12% in the quarter as clients leverage the full suite of services we provide across our workplace and property management platforms. Our leasing and capital markets business performed well, given the broader industry and economic environment. As we noted in the past, JLL has the #1 U.S. debt origination platform as well as the leading equity placement platform according to the Mortgage Brokers Association. We're uniquely positioned to manage the upcoming wave of debt maturities and capitalize on an eventual increase in commercial real estate transaction. With that, I will now turn the call over to Karen, who will provide more detail on our results for the quarter.

Karen Brennan, CFO

Thank you, Christian. Before I comment on our performance, there are a few items to note regarding changes to our reporting presentation effective in January that we previewed during the fourth-quarter call in late February. First, JLL Technologies and LaSalle's equity earnings have been excluded from adjusted EBITDA and adjusted net income calculations. While we exclude these investment-related items, equity earnings from our operating ventures across the other segments continue to be included. Second, our definition of LaSalle's assets under management now includes uncalled committed capital and cash, conforming with the industry standard. This definition change has no impact on the fees we earn. Third, following the conclusion of a comment letter from the SEC in February, we no longer report on the non-GAAP measure of fee revenue. As such, our discussion of revenue and associated growth rates are inclusive of gross contract costs and net non-cash MSRs. This primarily impacts the Work Dynamics segment and the Property Management business line within the Markets Advisory segment. Given the absence of fee revenue in our reported financials, we no longer specifically report adjusted EBITDA margins. Importantly, these presentation changes have no impact on how we manage our business nor on our profitability or cash flow. Nearly all of the information we previously provided is included in or can be derived from our new presentation. Comparable historical information is available at ir.jll.com. Separately, and consistent with prior practice, variances discussed are against the prior year period in local currency unless otherwise noted. Now on to the discussion of our performance. Revenue increased 9% to $5.1 billion on continued strength in our Resilient revenues and a return to growth on our Transactional revenues. The revenue growth, along with the benefits of our cost reductions, were the primary drivers of the 70% increase in adjusted EBITDA to $187 million and 168% increase in adjusted diluted EPS to $1.78. The first quarter reflects the strength and diversity of our platform as well as our continued focus on improving operating efficiency. The 12% increase in our Resilient revenues was consistent with the pace in the fourth quarter and was led by growth in Workplace Management and Property Management. A notable increase in investment sales activity, albeit on a soft 2023 comparison, drove a 1% increase in Transactional revenue, the first year-over-year increase since the second quarter of 2022. The 1% decline in platform operating expenses is a testament to our cost management actions as well as our ongoing initiatives to enhance efficiency. The increase in profitability led to a 6% year-over-year improvement in free cash flow and a reduction in leverage, so we continue to invest in our business and return capital to shareholders. We remain focused on positioning our business to best capitalize on near- and long-term opportunities to drive growth, profitability, and cash flow. Moving to a detailed review of our operating performance by segments, beginning with Markets Advisory. The 5% growth in revenue in the quarter was mainly driven by Property Management. Portfolio expansions in the Americas and the U.K. and incremental pass-through expenses drove 8% Property Management revenue growth. After five down quarters, leasing revenue returned to growth, increasing 2%, though on a soft prior-year quarter. The growth was led by mid-single-digit growth in the U.S. as most other geographies were down. Increased deal size and transaction volumes in the office sector drove the growth in the U.S., which more than offset declines in the industrial sector globally. We continue to see more sustained leasing demand for high-quality assets and saw a pickup in large deals, both of which are favorable for our business mix. Still, occupiers continue to delay leasing decisions, and large deals remain materially below the long-term average. Our global gross leasing pipeline continues to hold up, supported in part by the contractual nature of leases. The improvement in the OECD business confidence index from late 2023 through March, which generally leads leasing activity by 2 to 3 quarters, along with limited new office and industrial building starts and stabilization in sublease space, provides optimism for pickup in activity in the latter part of 2024 and over the longer term. We will be closely watching whether the recent escalation in geopolitical tension impacts business confidence metrics. The revenue growth and cost management actions drove a 33% increase in Markets Advisory adjusted EBITDA. Shifting to our Capital Markets segment. Revenue increased 6% in the quarter, though off a muted prior-year quarter, even as economic, geopolitical, and interest rate outlook uncertainty prolongs investor decision-making. Our global investment sales revenue, which accounted for nearly 40% of segment revenue in the quarter, grew 20% and compared favorably with a 4% decline in the global sales volume Christian referenced. Revenue increased across most geographies, led by Japan and Germany, and nearly all major asset classes, notably office and healthcare. Investment sales revenue in each region performed notably better than their respective market activity, led by Asia Pacific, according to JLL Research. Our U.S. Investment Sales, Debt, and Equity Advisory, which accounts for approximately one-third of segment revenue, grew low single digits. The Capital Markets adjusted EBITDA improvement was predominantly driven by revenue growth as well as cost management actions, which more than offset an increase in our multifamily loan loss reserve. The investments we've made in our capital markets talent and platform over the past several years position us to capitalize on a rebound in transaction volumes. Looking ahead, the global Capital Markets, Investment Sales, Debt, and Equity Advisory pipeline is up modestly compared with this time last year, and client engagement momentum has picked up. We continue to anticipate higher growth rates in the second half of 2024. However, as Christian described, the volatility in and outlook for interest rates, along with elevated geopolitical tensions, continue to weigh on investor sentiment and are impacting deal timing and closing rates, particularly in the near term. Moving next to Work Dynamics. Eleven percent revenue growth was led by a 15% increase in Workplace Management revenue as the 2023 global client wins and mandate expansion further ramped up. Within Project Management, lower pass-through costs drove the 3% decline in revenue as management fees were flat. In addition, the softer leasing activity in 2023 has moderated new project contracts. The increase in Work Dynamics adjusted EBITDA was primarily attributable to the revenue growth, absence of Tetris contract losses we noted last year, and ongoing cost management. Overall, the vast market opportunity, demand for our services, and their well-positioned global platform give us confidence in the sustainability of the segment's revenue and profit growth trajectory over the coming years. Workplace Management continues to see solid new sales trends alongside strong contract renewal and expansion rates. The large 2023 wins will continue to support solid momentum through the first half of 2024, though likely at a more moderate pace than the past few quarters. We remain focused on securing additional Project Management mandates. However, the slower economic backdrop and soft late 2023 leasing environment may dampen near-term growth rates. Turning to JLL Technologies. Lower bookings in the second half of 2023 as well as delays in client decisions were the primary drivers of the 12% decline in revenue. We continue to see strong retention rates of JLL Technologies software revenue. However, the combination of the change in our go-to-market approach, which primarily consisted of reducing our sales and marketing expenses in the latter part of 2023, and delays in client decisions is likely to continue to pressure growth in the near term. The reduction in certain expenses associated with cost management actions and incremental operating efficiency gains drove an improvement in JLL Technologies' adjusted EBITDA, which more than offset the lower revenue. While the path is unlikely to be linear, we aim to strike an appropriate balance between investing to drive growth and progressing to sustain profitability within the segment. The combination of the revenue pressures and timing of expenses, including carried interest accruals, may adversely impact JLL Technologies' profitability in the near term. Now to LaSalle. Revenue from advisory fees declined 7% in the quarter, primarily on the impact of ongoing valuation declines within our assets under management over the past year as well as lower fees in Europe from structural changes in our business mix. We anticipate valuation declines to pressure our assets under management over the next few quarters. Absent foreign currency exchange movements, assets under management were 3% lower than a year earlier, entirely attributable to valuation reduction. Capital raising and deployment activity continue to be subdued in the evolving market environment, which also shows in the muted transaction and incentive fees in the quarter. The decline in LaSalle's adjusted EBITDA in the quarter was largely attributable to the lower revenue, mostly offset by benefits from cost management actions and lower compensation accruals. Turning to free cash flow. The growth in earnings more than offset some modest growth-related working capital headwinds and drove a 6% improvement in free cash flow, which was a net outflow of $721 million in the quarter. As a reminder, the first-quarter outflow primarily stemmed from annual incentive compensation payments, coinciding with typically seasonally slower business performance. Cash flow conversion is a high priority, and we're very focused on our working capital efficiency. Shifting to our balance sheet and capital allocation. Liquidity totaled $2.3 billion at the end of the first quarter, including $1.9 billion of undrawn credit facility capacity. As of March 31, reported net leverage was 1.9x, down from 2.0x a year earlier due to a reduction in net debt, partially offset by lower cash earnings over the trailing 12 months. The first quarter typically marks the seasonal high point for leverage given the nature of our cash flows. Over the medium term, we intend to manage the business towards the middle of our 0 to 2x leverage range. During the quarter, we selectively deployed capital towards growth initiatives and repurchased $20 million of shares during the quarter. Organic reinvestment in our business remains a top priority for capital allocation, augmented with targeted mergers and acquisitions. Considering the seasonality of cash flow, current leverage, and the broader macro and geopolitical volatility, we anticipate near-term share repurchases to continue at a pace that will at least offset expected full-year stock compensation dilution. Looking further out, the amount of share repurchases will be dependent on the performance of our business, particularly cash generation, and the macroeconomic outlook will also weigh against our broader investment opportunity set. Regarding our 2024 full-year financial outlook. Growth trends in our more Resilient business lines collectively remained solid. The timing of a sustained recovery in the Transactional business lines continues to be difficult to predict considering the volatility in the interest rate outlook, elevated geopolitical risks, and mixed economic indicators. Still, given our pipeline activity, we're cautiously optimistic for a pickup in transaction activity in the latter part of the year. We continue to scale our platform and invest to both capture future growth opportunities and drive operating leverage. While we previously provided a full-year 2024 target margin range, to conform with our new presentation format, we have shifted to an adjusted EBITDA dollar target range. For the full year 2024, we're targeting an adjusted EBITDA range of $950 million to $1.15 billion, which is consistent with our previously communicated range. Our midterm targets, again, aligning with our new presentation format, now consist of revenue and gross contract cost ranges, which are $25 billion to $30 billion and $15 billion to $19 billion, respectively. As well as an adjusted EBITDA range of $1.6 billion to $2.1 billion. Importantly, these ranges are consistent with our previously communicated midterm targets. The time frame to achieve these targets will depend in part on the timing and pace of recovery in the transactional markets. The many strategic initiatives we have undertaken to drive growth and efficiency give us confidence in the long-term resiliency and the value creation prospects of our business.

Christian Ulbrich, President and CEO

Thank you, Karen. Let me look out to later this year. The market will adapt to a higher-for-longer interest rate environment. Pricing for the very best assets is beginning to stabilize in the U.S., U.K., and Australia, where prices have declined 15% to 35% from peak levels. According to JLL's proprietary global Bid Intensity Index, there has been a growing number of bidders across most sectors in early 2024 with dynamics strongest for the industrial and living sectors. Real estate as an asset class remains attractive based on its unique investment characteristics and returns. In leasing, we expect a strong demand for high-quality sustainable space to continue and, due to the shortage of this type of space, to drive an increase in rental rates. In today's changing world, we have proven our ability to deliver superior client outcomes while effectively managing profitability. Our One JLL model brings together the unique capabilities of our platform across the commercial real estate space, allowing us to sell more services and products to the same clients. Our technology and data tools provide our clients with leading insights into market trends and differentiate our offering while also helping to increase productivity. We remain focused on growing our business as well as also expanding our margins, especially in our Resilient business lines. As we're strengthening our service and product offerings, we will selectively add people and capabilities, both organically and through very targeted M&A. Despite an ongoing challenging operating environment, the prospects of JLL are bright, and we're optimistic for 2025 and beyond. Before I close, I would like to thank our colleagues for their foremost commitment to always serving our clients.

Operator, Operator

Please explain the Q&A process. And your first question comes from the line of Stephen Sheldon with William Blair.

Stephen Sheldon, Analyst

First one here, I just wanted to ask. It seems like there are lease and signs alike in Capital Markets. So how are you thinking about your capacity there if things potentially improve later this year? Karen, I think you had some positive commentary there on talent levels, etc. So can you give some more detail there? How much your capacity producer levels have maybe changed at a very high level? And are you still investing there? Are you planning to continue investing there as we think about the rest of this year, maybe ahead of a broader pickup in activity?

Christian Ulbrich, President and CEO

Stephen, it's Christian speaking. Listen, we haven't reduced our producer capacity at any notable number. And so we have more than enough capacity to drive higher revenues through our books if the market returns in the second part of this year. We are using this current market environment to assess a few brokers where we believe there's room for more capacity within our teams. But that is a relatively small number.

Stephen Sheldon, Analyst

And then just in Work Dynamics, a nice step-up in profit this quarter. Can you maybe help parse out some of the moving pieces there? I think you had a drag from the Tetris contract. And maybe just kind of how the cost containment efforts have maybe helped support a higher profit level there. Just any detail on the step-up in Work Dynamics profit.

Christian Ulbrich, President and CEO

Yes. We were just calling out that last year we had a drag on the Tetris contract. So year-over-year, that didn't turn the numbers this year. And just to bring that back to people's attention, overall, as we noted in previous earnings calls, we had significant wins last year, which then obviously we're taking live and we are benefiting from that this year. And on top of that, we are constantly trying to increase our productivity within all our service lines, but also within Work Dynamics. And the combination of that top-line growth, more business coming in, and the efforts around productivity has resulted in this margin expansion this quarter.

Operator, Operator

Your next question comes from the line of Peter Abramowitz with Jefferies.

Peter Abramowitz, Analyst

I understand that with the reporting change, you're now transitioning to the adjusted EBITDA number provided for the full year. I'm curious if you have any outlook on what you anticipate for margin performance based on total revenue with the new reporting.

Karen Brennan, CFO

Yes. Peter, this is Karen. We're going to be talking about our targets, whether it's an in-year target or the midterm targets on an adjusted EBITDA dollar basis now instead of a margin basis. But I will say that the adjusted EBITDA dollar target that we communicated is equivalent to what we previously communicated for our targets on a margin basis. So if you recall, previously our 2024 targets were in a 12.5% to 14.5% adjusted EBITDA margin. That's now been converted to $950 million to $1.15 billion for 2024, and then the same goes for our midterm targets approach.

Peter Abramowitz, Analyst

I would like to ask about the strength in U.S. office leasing mentioned in your presentation. Is that primarily focused on tenants seeking to upgrade to the best available space? Can you clarify if this trend is mostly seen in the Class A and trophy segments? Have there been any indications of activity in lower market segments? I would appreciate more context on this topic.

Karen Brennan, CFO

Sure. So we're continuing to see incremental signs of improvement in office broadly. That's generally being led by the highest quality, best space available, and you're seeing rents continuing to increase in that space. One other thing we closely monitor is the activity around large lease deals, which we categorize as those deals over 100,000 square feet in the U.S. And builds are returning to the market as well, but that's still depressed compared to the pre-pandemic averages. Right now, it's still almost 50% below that level. So that is still ticking up, but not yet all the way back. A couple of other comments on leasing, while we're on this topic. We're seeing an increase in new tenant requirements as we did last quarter, and those are within approximately 30% of pre-pandemic levels. Importantly, the sublease vacancy rate is continuing to fall. And so we're seeing both new additions decreasing and then notable backfill activity occurring, particularly in the Bay Area in the U.S. and also in New York.

Operator, Operator

Your next question comes from the line of Michael Griffin with Citigroup.

Michael Griffin, Analyst

I wanted to go back to sort of those midterm financial targets that you highlighted, Karen. Obviously, the base case is for rent cuts to come in the back half of the year, consistent with transaction activity really picking up. Should we interpret that as being able to hit those midterm targets by 2026? And conversely, if the recovery is pushed out further into 2025, would that mean that you'd reach those adjusted EBITDA dollar amounts in the, call it, 2027-or-so time frame?

Karen Brennan, CFO

Yes. At this stage, we're still categorizing those as midterm targets. We really want to look at how the remainder of the year transpires in terms of the recovery of the transactional markets before committing a specific calendar year to achieve those. One of the things we are saying as it relates to our midterm targets is certainly, we're very focused on having accelerated growth in the adjusted EBITDA relative to the revenue trends. And so that's something we're very focused on, regardless of the shape of the recovery in the top line.

Michael Griffin, Analyst

Great. And then I just wanted to ask on free cash flow. Obviously, it improved this quarter relative to this time last year. But how should we think about the cadence going forward? And do you have a maybe percentage amount in mind for free cash flow conversion for the year?

Karen Brennan, CFO

Yes. So first, let me just discuss a little bit about the major drivers of free cash flow in the quarter, and I'll talk about the outlook for the year. So we were an outflow of $721 million, which was slightly better than the $676 million outflow last year. That was primarily due to cash from improvement in earnings, and then that was partially offset by some working capital headwinds as the business grew, particularly on our Workplace Management business, along with the timing of some payables. As we think about the rest of the year, the key drivers on a full-year basis will certainly be reflective of our overall earnings level. But importantly, the business mix for those earnings will also impact the working capital outcomes. So you'll have business lines like Workplace Management growth being a headwind, and then you'll have some tailwinds from Capital Markets in the U.S. to the extent that it's growing strongly. A couple of other things to call out as we think about our free cash flow, the ability to ensure we're continuing to timely collect our receivables remains very important. So we're very focused on that. And I also would want to call out for this year that we will expect some lumpiness associated with the timing of cash tax payments on an individual quarter basis compared to last year. So you may see that materialize as the year progresses.

Operator, Operator

Your next question comes from the line of Anthony Paolone with JPMorgan.

Anthony Paolone, Analyst

Just on Work Dynamics. You've got the change in presentation. You talked about some of the Project Management drags and then also some of the wins. Can you maybe just put that all together and give us a sense as to kind of where organic revenue growth is likely to be for that business as we look ahead to next few years, maybe just back to the old way of thinking about it in terms of more revenue?

Christian Ulbrich, President and CEO

Well, first of all, all the growth you have seen is organic. We haven't done any mergers and acquisitions recently. And as we said, the Workplace Management business has had some significant wins last year and has continued to win at a very nice pace. And so we expect that business to continue to show good growth, but that growth may not be as has been in the last quarter, double digits. That may fall back to what we have called out for the longer term. We are aspiring to something in the high-single digit overall.

Anthony Paolone, Analyst

Besides the Project Management ebb and flow, the idea is that Work Dynamics overall, you still see as a high single-digit grower. Is that fair?

Christian Ulbrich, President and CEO

Yes. I mean, every quarter has made so little differences. As you saw this quarter, we had this very strong growth from our Workplace Management business. But overall, in the longer term, you should see, on average, a high single digit. That's our aspiration here.

Anthony Paolone, Analyst

Okay. And then in terms of just the EBITDA guidance for the full year, can you talk a bit about just where you see the pressure points, either on the upside or downside, are in sort of that guidance? And also, should we anticipate 2Q to show progression from 1Q? Because 1Q came in pretty strong, it seemed like.

Christian Ulbrich, President and CEO

I will start and then Karen will follow. The main uncertainty lies in the Transactional side. We feel confident about forecasting our annuity-type businesses, particularly in our Work Dynamics and Property Management sectors. However, forecasting the Transactional business is much more challenging. We observe an unusual relationship between daily interest rate changes and the Capital Markets Transactional business. As long as we are dealing with these interest rate fluctuations and people are not focused on the underlying assets and the quality of the deals, it becomes very difficult to predict the volume. If the Transactional market, especially within Capital Markets, improves later this year, it would positively impact our performance and help us reach the upper end of our projections. If the market remains as subdued as it was in the first quarter, despite our own performance, it becomes more ambitious to achieve the upper end.

Karen Brennan, CFO

Yes. The only thing I would add is that, at this stage, we typically have seasonality over the course of individual quarters. And at this stage, we don't anticipate any material deviation from that seasonality and, as the year progresses, expect to see similar trends from where we've had.

Operator, Operator

Your next question comes from the line of Alex Kramm with UBS Financial.

Alex Kramm, Analyst

Maybe just to dial into the previous question a little bit more. Christian, you made this comment that the marketplace is slowly adjusting to a higher interest rate environment. So coming back to the guidance for this year, does it imply any rate cuts? Do you think rate cuts are needed? Or do you think you can perform like you've outlined even if markets just stabilize and rates stay where they are currently?

Christian Ulbrich, President and CEO

Yes. We didn't anticipate that interest rates were coming down so quickly as the broader market did. So we were more on the cautious side. And so our own planning doesn't need any rate cuts. But if the question was more towards what would drive us to the upper end of our range, some support from the Transactional side would be helpful. If there is no support, then we will deliver as we planned for.

Alex Kramm, Analyst

Right. Good. Then maybe just on the leasing side. I don't think you mentioned this, but obviously, a 2% growth for the year. I think last quarter, you mentioned that leasing should be a similar picture to what you expected in 2023. So just curious, do you think the environment has gotten better? Do you think the low single-digit range is a good outlook for the full year? Or do you think kind of flat with last year is the better way to think about it, which obviously would imply a little bit of a slowdown? Didn't sound like it.

Karen Brennan, CFO

Yes. We're early in the year, and so I think the number you quoted is from a first-quarter perspective. And so we continue to expect modest growth over the course of the year. And we're seeing continued pickup in office and some more softness in industrial, but we expect that will also return to growth and stabilize towards the end of the year. So it is the pace of acceleration is really what will determine the ultimate growth rate. One of the things we keep pointing to over the last couple of quarters is really the level of business confidence. And so we've been referencing the OECD business confidence index because there's a high correlation, whether you look at that globally or for the U.S., on a 2- to 3-quarter lag of an uptick in the business confidence index and kind of the overall market volumes recovering. There was an uptick again in March, and we're looking to see what happens in April, considering a lot of the negative macro headlines came out during April.

Operator, Operator

Your next question comes from the line of Jade Rahmani with KBW.

Jade Rahmani, Analyst

Do you see a big opportunity in private credit, driven by the pullback in the banks? And if so, how do you see that manifesting in the business? Would you look to acquire any companies or retarget brokers on certain key relationships? Just if you could comment on the opportunity in private credit.

Christian Ulbrich, President and CEO

It is correct that traditional lenders are not as active as they have been in the past. And I think it is very likely that this will continue to be the case for the foreseeable future, which obviously offers a lot of opportunity for nontraditional lenders to come in. We are actually pretty agnostic to the question of where the money is coming from. We have an excellent overview of all the players in the market and are trying to arrange the best debt opportunities for our clients, which are available in the market. So this is, for us, normal course of business, and it doesn't need any kind of M&A on our side to tap into that market.

Jade Rahmani, Analyst

In the GSE multifamily business, certain banks are reducing their involvement. Do you think this creates an opportunity to increase market share?

Christian Ulbrich, President and CEO

We have a very strong market share in that business already, and we still believe that there's room for us to continue to grow. I would be much more optimistic about the lending environment in the multifamily business because, overall, the demographics in most geographies are quite helpful here. That has demonstrated in the past to be a very resistant and resilient asset class. So, going back to your previous question, the changes we see in the lending environment are much more visible in the commercial space than in the multifamily space.

Jade Rahmani, Analyst

And finally, just on JLL Technologies. The slowdown in sales was somewhat surprising. I know the profitability still requires additional scale. But was that different from your prior outlook? Or was that anticipated? And when do you expect that trend could reverse itself?

Christian Ulbrich, President and CEO

I mentioned in our third-quarter earnings call that we made adjustments to our sales and marketing expenses, which will impact our future performance. What you observed in the first quarter is part of that effect. Additionally, we faced delays in decision-making from several large clients in our Technology Solutions segment, who slowed down the pace of new implementations. It's important to highlight that the SaaS business within JLL Technologies performed reasonably well. We anticipate this slowdown will last for possibly one or two more quarters before we see improvement. More importantly, as we indicated last year, we have chosen to prioritize profitability over top-line growth in the current uncertain environment. We are highly focused on our bottom line. Once our business returns to at least a breakeven point, we will assess the overall market conditions. If the market environment becomes favorable, we will increase our sales and marketing expenses, which will subsequently drive stronger top-line growth.

Operator, Operator

And your next question comes from Patrick O'Shaughnessy with Raymond James.

Patrick O'Shaughnessy, Analyst

What are you guys seeing right now in terms of average office lease duration? Are companies more willing to sign longer leases at this point in the cycle?

Karen Brennan, CFO

I'll provide some statistics about the U.S. office market, which is where we have the most data. In the first quarter, there wasn't much change compared to last year. The overall weighted average lease term was 7.8 years, consistent with 2023. However, this figure remains below the pre-pandemic level. Back in 2019, the weighted average lease term was 8.6 years. I should note that increased sublease activity is influencing this trend. Many companies are opting for subleases instead of direct leases, which is reducing the overall weighted average lease term. We anticipate this trend will persist as the market addresses its space issues. For instance, the direct weighted average lease term is 8.3 years, while the sublease weighted average lease term is 4.3 years, indicating a significant difference.

Patrick O'Shaughnessy, Analyst

Got it. That's helpful. Have your changes in financial reporting methodology due to your communications with the SEC impacted how you're managing the business in any way? Do you still think about margins internally?

Karen Brennan, CFO

No. So it hasn't changed how we manage the business internally or how we think about things. So along with a host of other KPIs, we still use both the fee revenue and adjusted EBITDA margin metrics internally. And our management team is still compensated, in part, on the adjusted EBITDA margin calculated, and we disclosed that in our proxy statement. So we'll continue to do that. And then just to highlight that information needed to calculate both of these is still available in all of our earnings release information that we provide.

Operator, Operator

Your next question comes from the line of Anthony Paolone with JPMorgan.

Anthony Paolone, Analyst

I just had a follow-up on JLL Tech. I know it's not a big revenue line. But when I look at that, I was thinking of like Building Engines and such where when the client adopted, it's likely a pretty recurring business. But it was down a bunch. And so I don't know, maybe help me out with that, just to understand what was happening there and how to think about it on a go-forward basis.

Christian Ulbrich, President and CEO

Anthony, as I just stated there, the JLLT revenue bucket is mostly built up by our SaaS revenue products. One of them is Building Engines; Corrigo is another one, and then our Technology Solutions business, where we usually help clients by implementing third-party software and service. And that third-party software business declined this quarter quite significantly for the two reasons I stated. We reduced our sales and marketing teams, as stated in the third-quarter call last year, and we had some delays in decision-making from clients for new assignments. On the SaaS business, that has been relatively steady this quarter. You mentioned Building Engines. Building Engines is very often connected to transactions. The owner of a building is changing, and the new owner is implementing Building Engines. And so with the transactional markets relatively muted, that has an impact on Building Engines. But on the other hand, we have brought that product now into Asia, with a very successful implementation in Australia. Medium to longer term, we are very bullish that the gross numbers will come back to the levels where we expect them to be.

Operator, Operator

That concludes our Q&A session. I will now turn the conference back over to Christian Ulbrich for closing remarks.

Christian Ulbrich, President and CEO

Thank you. With no further questions, we will close today's call. On behalf of the entire JLL team, we thank you all for participating in the call today. Karen and I look forward to speaking with you again following the second quarter.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.