Earnings from commercial real estate services company Jones Lang LaSalle Incorporated (JLL 1.39%) usually create volatility, not least because management doesn't give revenue and earnings guidance. In other words, unlike with a box of sugar-laden chocolate, you don't know what you are going to get.

In addition, it operates in a highly cyclical industry, which leads investors to be nervous as to when the commercial property market will have peaked. The stock is down heavily post-results, but let's take a close look at the actual results and what management said.

Jones Lang LaSalle results: The raw numbers
The company reports out of two segments. Real estate services (RES) generated around 79% of adjusted earnings before interest, tax, and depreciation (EBITDA) in 2015 while LaSalle Investment Management is responsible for the rest. Activities in RES include commercial property leasing, property management, and project and development services.

A look at adjusted EBITDA growth in the fourth quarter:

 Adjusted EBITDA (Millions)Growth







RES-Asia Pacific



LaSalle Investment Management







Given that total adjusted EBITDA increased 15.1% for the full year, the 4.1% produced in the fourth quarter marks somewhat of a slowdown in growth.

That said, the company's results were affected by currency effects. For example, total RES revenue increased 15% in local currency but just 8% in U.S. dollars.

Growth to follow?
The key question is whether the commercial real estate market has peaked or not. There is no doubt that a combination of economic uncertainty, weak oil markets, and fears over China have affected property sentiment in the same way as equity markets have been affected. For example, commercial mortgage-backed securities (CMBS) swap spreads -- a key indicator of sentiment in the commercial property market -- widened notably in January.

Moreover, on the earnings call, Jones Lang LaSalle CEO Colin Dyer talked of an environment with more cautious investment sentiment. Jones Lang Lasalle's capital markets and hotels (reported within RES) sales were up just 1% in U.S. dollars in the fourth quarter, dragged down by a 20% decline in the Asia-Pacific region. This is a sign that investment activity fell dramatically in places like China.

Dyer made a specific reference to China in his opening remarks on the earnings call:

The slow decline in manufacturing sector contrasts with continuing double-digit growth in the consumer and service sectors. The move to services is benefiting our business as it tends to drive demand for office, retail and warehouse space, particularly in tier one cities.

And he went on to predict growth for the overall company in 2016 and stated that there are "significant amounts of capital allocated to real estate but not yet invested, so at this point we see the fourth quarter activity in investment sales as a hesitation not the start of a trend." 

Gross absorption
In addition, the company's forecast for gross absorption is positive. Gross absorption simply refers to the percentage of total commercial real estate space leased during a specific period. If the gross absorption number is increasing, then leasing market activity is going up, and the company should see a boost in demand for its RES in 2016.

  • U.S. gross absorption guidance for flat to 5% growth
  • Europe gross absorption seen flat
  • Select markets in Asia-Pacific gross absorption forecast to increase 15%

In other words, a positive forecast for end-market conditions in 2016.

Looking ahead
The commercial property market is obviously tied to the economy at large, and in common with most other cyclical stocks, the company needs the economy to hold up in 2016. Moreover, investors should keep an eye on credit markets and spreads because any contained widening of commercial mortgage-backed securities spreads will signal increased stress in the commercial property market.