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Spencer Levy
The flexible office space business is in a state of flux, especially after the recent high profile bankruptcy of what is the most well known flex space operator in the world. But don't let such headlines mislead you. On this episode, a global perspective on flexible office space.
Enrico Sanna
It’s the brightest spot of the office market, without a doubt.
Spencer Levy
That's Enrico Sanna, CEO of The Office Group, a 20-year-old company based in London with a portfolio of 72 buildings across the UK and Germany, and a flexible office brand known as Fora. In total, the company operates about 3,000,000 square feet of space and serves some 30,000 clients, a spectrum that includes freelancers, small companies and large blue chip multinationals.
Jamie Hodari
The flex industry, notwithstanding the WeWork bankruptcy, has never been stronger. Almost any operating or financial metric for a high quality provider would be higher right now than it would have been in 2019.
Spencer Levy
And that's Jamie Hodari, the CEO of Industrious, a flex space provider and CBRE strategic partner based in the U.S. From its first property, which opened in Chicago in 2013, Industrious has grown to include more than 200 locations in 11 countries across the U.S., the UK, Europe, Asia and Australia. Coming up, the world of flex space, the state of the asset type, and the debate over the business model with two of the world's leading operators. I'm Spencer Levy, and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take, and this week we are pleased to be joined by Enrico Sanna, CEO of The Office Group. Enrico, thanks for joining the show.
Enrico Sanna
Hi. Good morning everybody, or good afternoon or whatever it is. Good afternoon, here from London.
Spencer Levy
It’s a little bit of both. A little bit of morning, a little bit of afternoon. And then our friend and colleague Jamie Hodari, CEO of Industrious, also one of the world leaders in flex space. Jamie, thanks for coming back.
Jamie Hodari
Thank you for having me. I always have a great time on the show. I always learn something. I always have some thought provoking moments. I was very excited to be on.
Spencer Levy
Awesome. Well, I have my coffee ready to get those thoughts provoked. And let's start with this thought. Fellas, I think it's not any news to you, but maybe news to the marketplace, that there was a significant bankruptcy announcement by WeWork recently, which has called into question to some, the future of flex work, the future of co-working. What's your point of view Enrico?
Enrico Sanna
Well, let me start by saying that I don't think that the WeWork situation is reflective at all of the strengths of the flex office market that we've experienced over the past ten years, and we continue to see a lot of growth, even post-pandemic. You don't have to believe me, but you can believe what a big agency like CBRE and others say about the flex office market, and everybody points in one direction, which is growth. So much growth, for example, in one of our home markets in London where we're flexes today is 10% of the market, and is expected to double or triple in size over the next five years, and certainly the last 24 months pointed in that direction.
Spencer Levy
Well, Jamie, just like Enrico, your point of view on the WeWork situation.
Jamie Hodari
My take on the WeWork situation: I can understand why this would be confusing for a listener to try to parse out, because for those of us in the industry and people who look at it, it's clear that there is a lot of demand for flex right now. And in fact, it's one of the true bright spots within commercial real estate. To Enrico's point, even in a very mature flex market like London, most outside observers are predicting that it will roughly double as a percent of commercial real estate in London. If I look at Industrious’ own numbers, our revenue has grown 300% since before Covid, and this is really the golden era of flex for reasons we can get into. And then you have WeWork, the most iconic company in the flex space, going bankrupt at that time. And I think that can be confusing. The thing I would say is, the scale of WeWork’s liabilities forced the bankruptcy. It was insurmountable. So WeWork’s fixed liabilities, their rent and their interest payments, was 86% of revenue on the eve of the bankruptcy. There’s not really any company on earth that could survive if $0.86 of every dollar that comes in has to go just to cover their fixed liabilities before they can, again, start running the business. So they were turned upside down in terms of the scale of those liabilities. They had to go into bankruptcy to try to refashion that balance sheet and refashion the P&L and then come out, hopefully, a successful business on the other end. But that's really the cause of that, much more so than any softness or change in demand for flex more broadly, because demand for flex more broadly is actually way up since Covid.
Spencer Levy
Let me make a statement that maybe is a bridge too far, but I want to just put it right out there. Notwithstanding the WeWork bankruptcy, the flex space business has never been better. Is that a fair statement, Enrico?
Enrico Sanna
It's completely a fair statement. I agree with Jamie that it is the brightest spot of the office market, without a doubt. And you see the amount of demand we're facing today in terms of leads per month, how you want to count them for, is actually higher than the pre-pandemic level. If you see the occupancy we have achieved in our mature buildings, i.e. buildings that have been around long enough to have a historical trend, we are above the occupancy of the first quarter of 2020. So I think without a doubt the underlying demand is there. And then when you peel that and you think about what clients are telling us, and what people are seeking, is a full experience in a high quality workspace. People want to return to a workspace that enables them to do their best work. And while the desk is one element in the way we work, we work in different styles and we tap into different work settings and different experiences through the day. And I think the flex industry, or at least the flex industry at a high quality, where Fora plays or Industrious plays, is super well positioned in my view, to capture the new needs or the emerging needs of the customers.
Jamie Hodari
That is absolutely true. The flex industry, notwithstanding the WeWork bankruptcy, has never been stronger. Almost any operating or financial metric for a high quality provider would be higher right now than it would have been in 2019. Pricing, occupancy, churn rate would be lower. Pretty much any input to the business would be stronger now than pre-COVID. And what I like about that is businesses have ups and downs. Industries can be cyclical. The thing you want is to be in a golden period, in a period of a lot of demand. And the specific drivers of that demand feel durable, feel sustainable. I'm biased, but I think it's pretty clear that the dynamics that are causing this increase in demand are pretty durable dynamics.
Enrico Sanna
Flex doesn't work for everybody and doesn't work in every single building, every single city of the world. And the reason – what I'm saying here is, like, you’ve got to take a customer-led approach as opposed to a product-led approach, to be successful in flex. And therefore when you think about a building, you’ve got to think about will that building work for my customers or for my value proposition? Because asset selection, I am convinced, is at the forefront of success in this industry. But asset selection is understanding ultimately what kind of business you're running, and therefore what kind of asset you need to be successful. As opposed to any asset, as I say, in any city, in any submarket, I just compartmentalize our cellularize it and provide a flex contract and then customers will come. I think that is not the formula.
Spencer Levy
So there's a famous movie, “Field of Dreams”, where they say if you build it, they will come. That is not the case in flex.
Enrico Sanna
That's not the case in flex.
Spencer Levy
So Jamie, let's stay with the site selection. And I think that you said it during your answer about the state of the industry, that notwithstanding the fact that the industry overall may never be better, there's ups and downs within the industry. The elephant sitting in the corner of this room right now, is the same elephant sitting in the corner of most rooms, which is the challenges facing getting people back to the office, particularly in the United States, a little bit less so in Europe and Asia. And particularly in CBDs. So, Jamie, how's that impacting the flex business?
Jamie Hodari
There's a few ways in which remote work, hybrid work, is impacting the flex business. The first is, companies are much more distributed as a result of that. You have people who moved to Denver or moved to Edinburgh, and they don't want to move back to London. They don't want to move back to Chicago. And therefore companies have to find a way to accommodate having them have a place to go into, see some of their colleagues, you know, not spend the next ten years in their living room. And that has helped the flex industry a lot. The second is, what flex providers can do is create a network of spaces, not just across the world, but also within an MSA. And the way that people work right now has really favored that methodology, because I live in Brooklyn, for example. It's game changing for me to get to walk to an Industrious four minutes from my house and work with a couple of colleagues there. Bike right over the Manhattan Bridge and go to an Industrious in Chinatown, if I've got a dinner right after work. And two days a week, go to our headquarters in the World Trade Center if I want to see most of our colleagues. That sort of city as a campus way of working has really lit up post-Covid, and that's hard to accomplish for most companies without a flex provider. But what most people would say is, they might want to work from home, maybe on Friday, maybe 1 or 2 days a week. Other than that, it's really commuting aversion that kicks in. It's more, I don't want to sit on a train for 40 minutes both ways, 4 or 5 days a week. That eats up a lot of time. It's not enjoyable. And therefore what we see is, if you've got a network of spaces, people tend to go in four days a week. If they only can go into a CBD location, they only go in 1 or 2 days a week.
Spencer Levy
Jamie, I travel extensively throughout the United States, and I run into Industrious locations just about every trip, and I ran into one this past week in the West Loop in Chicago. I walked past it on my way to dinner, and I walked past one the other day in Carmel, Indiana. One is dead set in the middle of the city. One is dead set in the middle of the suburbs. How do your CBD locations do today, given the city as a, what was it for term used, city as a campus concept?
Jamie Hodari
City as campus, yeah.
Spencer Levy
If people are going to be going to the HQ in the CBD but may go to Industrious in the burbs.
Jamie Hodari
The CBD locations are great. I would say a year ago I was worried about them. I was worried that you would have these neighborhood locations that were performing extremely well and these central business district locations that were struggling. But we are now at a point where San Francisco is almost fully occupied. Dallas, places that I was very worried about. Now, the network of spaces helps, not hurts. It's easier to pull the trigger on taking a space in downtown San Francisco if you know you've also got a place in Palo Alto or Walnut Creek to pop into, and I think that can feel counterintuitive. You'd think that having offers in mixed use neighborhoods would draw people away from a central business district, but actually what it does is make it easier to say, great, that's perfect. Then on days where I don't feel like getting on a subway or driving 40 minutes, I've got a spot. What a lot of companies, for example, you see is, I might have a space in Brooklyn or Carmel, Indiana. I love it, I bike to it. I'm enjoying it a lot. I see other people who live in my neighborhood, but if I'm pitching Blackstone, I'm not asking Blackstone to come out to Brooklyn. I need a place to work and see them. And so a lot of people's white collar jobs, at least a few days a week, involve some sort of external gathering component. And that's why it can be really wonderful to have a CBD location to meet other colleagues or meet external partners or pitch or stuff like that, and then days where you're not really seeing anyone, you work in one of the closer to home locations.
Spencer Levy
Enrico, let's now talk about some interior issues for just a moment. And I'm going to go back to our prep call, where we kept calling the industry co-working, and you kept correcting us and saying, no, it's not co-working, it's flex work. Why the change?
Enrico Sanna
Let's start with a bit of history. I mean, the service office, you know, the service sector, the service office were invented really honestly by Mike Dixon, and with Regus and IWG, 30 years ago, out of Europe, actually. The service sector has been around for a long time. I think what has happened is, over the past ten years with players like WeWork, has been put a spotlight on these, and co-working was the trendy word. But co-working really means, literally means you are in these massive open plans or large open plans, communal areas where you co-work, you're sharing everything elbow to elbow with people who have running businesses like you. You're in these big open plans and it's very mutual, etc. That's not what the majority of us do. The majority of us, what we do is we provide cellurized offices of all kinds, of all sizes, of all shapes, to companies from the smallest companies to the largest companies. And we do this on flexible terms. And that's why, you know, the flex, we're now called flex. But I think we still have to find the right word, because I would argue that the reason why so many companies, as I say from the freelance all the way to a blue chip company, come to a platform like Fora or a platform like Industrious, is not only because we provide a flexible contract, but it's because what we create inside these buildings, inside these workspaces, is what people want. We run our spaces, we design them, we develop them, we run them, we listen to our customers. We keep on upgrading them and getting them better and better to respond to their needs. I think as a sector, we quite haven't found the right word, but I definitely think we're knuckle working. And flex is a better term because at least we do offer a flexible contracts.
Jamie Hodari
If I could wave a wand and rename the industry and I was only focused on accuracy, so forget about if it's a sexy term because this would not be a sexy term, I would call it outsourced office, or workplace as a service. And that's really, you're allowing someone to buy their workplace as a product from a provider instead of doing it themselves. And this is very much part of that broader trend. So I think flex is accurate. I agree with Enrico. It speaks to one portion of our industry, but the most accurate probably would be outsourced office, workplace as a service. And the co-working part I would say there is one way to think about it is, you have an enormous number of businesses that all of us use in our everyday lives, where they're flexible, it's productized, you get a wonderful experience that you get to consume in real time when you want it. Airbnb, instead of having to own your own vacation home. Uber, Amazon Web Services, all those things, and they all fundamentally are sharing economy businesses. The whole thing that makes Airbnb tick is you stay in the house one weekend, someone else can stay the next weekend. The Uber you take, someone else can get in the car two minutes later. And in our industry, one of the things that makes it great is McKinsey moves out, Bain can move into that same suite three weeks later with a little bit of modification. And so it's of camp with all those things. So the co in co-working, the sharing economy component, it is part of what makes you able to deliver a wonderful experience at a reasonable rate on flexible terms, it's just not the reason people are buying the product. It's a substrate. It's beneath the surface. It's part of what unlocks that. If I use Amazon Web Services, I don't care that Sony might be using the same server rack when I'm not using it, when it's daylight in Japan and it's nighttime in the U.S. or something. But that is part of what makes a lot of these modern businesses tick. It's just odd when you say co-working because you're highlighting that component, and to the customer, it's not that relevant. It’s not why they're buying the product. They're buying it because they want a great workplace outcome for their employees that's delivered to them instead of having to do it themselves.
Spencer Levy
Enrico, one of the changes that has happened post-Covid is people are looking for cool places to have events, and it used to be a small piece of the business, but now I understand it's a growing piece of the office as a service business. Tell us what entertainment is to your business.
Enrico Sanna
It has definitely been growing. If I just look at the revenue we generated from this side of the business over the past 12 months has increased 40%. And that includes anything from booking meeting rooms all the way to large events, conferences of size for companies, from meeting space to FMB to tech has been a growing part of our business. And that, I think, has to do with the fact that people are craving coming back together and sharing face to face experiences. And therefore we're well set up in our spaces to entertain that.
Spencer Levy
So are these typically existing tenants that are using your space for entertainment, or they third parties saying, this is just cool space. I’d like to rent it.
Enrico Sanna
About 40% of our business comes from clients who don't have an office with us, and the remaining 60 is our own clients, so it’s a mix.
Jamie Hodari
Meetings and events, entertainment is definitely a very fast growing part of the business. It's a substantial part of the business, and I think it's logical. A lot of companies that might have 500 people in a city got rid of their big 500 person headquarters, but then every month, every two months, they all want to gather, they want to be together. And so in certain ways, these big events have replaced the mega headquarters place sort of culturally within companies.
Spencer Levy
So is it true that when U2 finishes their gig at The Sphere, their first gig is going to be at the next Industrious party?
Jamie Hodari
I think we got to set that up. I would love that.
Enrico Sanna
But I think they're an Irish band, so they're probably in London, not Fora.
Spencer Levy
Well, you heard it here first folks. Office as a service and duking it out over who gets U2 first when they're done with the Sphere. So let's shift now from the customer to the facility in which the space sits. As an old school real estate professional, I always valued real estate based upon the long term discounted cash flow of that building. And the longer the lease is, the better. And so one of the push backs on the industry has been well, are these long term leases? Are they short term leases? Are they managed contracts and whatever it is, has the lending community adapted to be able to value this space at the same or higher value as a space with a traditional lease? Enrico, any point of view on that?
Enrico Sanna
Let me start by saying that we have probably a very different models to most operators because we are freehold land. We own a large number of our assets. That's how the business of Fora was born and continues. So we understand the property business. We are investors in our own properties. And what that has given us is a really good appreciation of the fact that we're going to be forever owners of something. Therefore, we're going to design something the lasts forever, or it's going to work forever, etc. That's the first component. The second thing I will say is, we also work for a lot of landlords on their behalf and their relationship with, you know, partnerships. People call them management agreements. They're different kinds of partnership. But ultimately, we do not own the building, but we make the building sing and dance like if it was our own, but on behalf of others. So we have a very deep knowledge and understanding of the real estate market. Without a doubt, the market, the financing market, and the lending market, like sustainable long term, I would say secure, i.e. good guarantees behind cash flows, because those are perceived to be the best cash flows. They get the less discount and therefore they’re worth the most. But I think we live in a world in which things are changing. And my analogy I want to give is the hotel industry, which started similarly. The hotel operator used to own their buildings, lease their buildings, and eventually, after many years of great performance, they beat the metrics of a traditional lease ownership because of how good they were running as an operator. They shift to management agreements, and now the capital markets completely understand those management groups. They can price them, they can trade them, etc. So I am 100% convinced that through great companies in the flex space, they continue to perform and continue to deliver above market metric returns. We can build a history that will support a different kind of valuation of our cash flows beyond the traditional method.
Spencer Levy
Jamie, I don't believe you own any of your sites. Correct me if I'm wrong in that you have more of a managed model. Tell us about your model and how it might be impacted, or certainly being more accepted by the capital markets, specifically the lending community.
Jamie Hodari
I think this is a great question. Like, you know, I go on a lot of podcasts, but usually they're professional hosts, business people who are not from our world, and they never think to ask about the impact on cap rates or when buildings change hands. And the reason it’s a great question is because if I had to admit, that is often times the only real obstacle for an asset owner trying to decide whether to use a use like this. If someone who owns a 600,000 square foot building, we're at a point now where they would say, yeah, if I could have my druthers, floors two and three should be flex space. The building would perform better. It could be a service to the whole building. It'll probably help the other 80% of the building perform better. But I'm a little scared about the lender treatment of that and the price when I go to sell the building. So you're getting to the heart of really one of the only remaining sources of anxiety for asset owners about moving a portion of their building over to being flex. The nice thing is, there's mounting evidence that it doesn't impact the cap rate of the building when it changes hands, or it actually helps the sale price of the building, because most buyers at this point understand you're not going to spend the next 20 years having a building that's 100% comprised of ten year leases and doesn't have amenities and doesn't have shared spaces and doesn't offer the long term tenants anything to differentiate the building. So having a great flex provider again on the second, third, fourth floor is a enormous benefit to the rest of the building and can really help with lease pricing, lease performance, and a lot of buyers want that. So if you go to sell a building and it has no flex in it, they're probably going to bring a flex provider in and have to spend 6, $7 million to build out the space. You buy a building where the space is already built out and it's gorgeous, that makes the building more valuable. Green Street has a report where they looked at a series of buildings that changed hands in London, and when the buildings had a flex space that was operated by a low quality provider that was performing poorly, it negatively impacted the sale price of the building. But when the buildings had a high quality provider, to Enrico's point, the equivalent of a Westin or a Four Seasons or something like that, it actually helped the sale price of the building.
Spencer Levy
Given the distress in the office industry overall, I'm going to go through a little math for about two seconds here. Math warning. If you sell a building at a five cap, that is the equivalent of a 20 times multiple on your NOI. Okay, there's the math, folks. Now that that five cap in these office buildings may be approaching and if not exceeding ten in certain locations, it's a ten times multiple. But if you're dealing with a tech company, you're dealing with much higher multiples than that. So I guess my question was really getting at whether you're real estate or tech or business as a service, it’s really trying to maximize the value of the enterprise. So maybe flex business has more value as an enterprise than a traditional real estate business today, in part because of the devaluation of traditional offices. Any reaction to that?
Enrico Sanna
It is true that if you look at the average, that's what's happening. But I think we’ve got to double click through the average and see exactly what's happening inside. And actually the yields on the higher end, high quality building in great locations, actually, and I'm talking about, for a second, about central London or Germany. They actually haven't moved much. The movement is all correlated to the fact that the cost of funding has increased, and therefore there is a correlation between debt and equity. But I think this is what's the exciting part is, to me is, that high quality asset is what people want, and therefore it makes everybody more focused on delivering on that front as opposed to a history over the past 15 years specifically, we also with access to very low interest rates of, the math was working regardless of the quality of your asset. Right? So I think there is this location of the office market. But I think the exciting opportunities to reposition many assets to be the assets that people want in the future. And therefore, I think we’ve got to be careful that we don't just paint, you know, the same brush the picture because it's very different. And I can see in my business, like, the quality of our assets is strictly correlated to the quality of the performance of their building. From a property perspective, you can think about our business as a propco and opco, simplistically, right, where propco is the value of the real estate with a stable stream of income, and opco is the excess income that your operating business generates above that. The more that operating company demonstrate that they can always be above the basic income of propco, the more the yield of the opco would compress down, therefore the multiple increase. So I think again, I think through running good businesses that perform above the key metrics, I think we'll continue to push those multiples in the right direction.
Jamie Hodari
I think it's a really interesting way to think about it. You're an operating business. What are multiples on operating businesses and how do those compare to multiples essentially on the NOI of a building? That's why I think it's helpful to think of flex providers as business services businesses. Marriott, Hilton, they all trade at about 15, 16 times earnings. The big restaurant groups like Chipotle, Cava, that are growing trade at 22, 23 times earnings. A lot of the big business services, successful business services companies are in that range as well. The average multiple on the S&P 500 right now is about 16 times earnings. So it's probably fair to assume that a high quality flex provider would trade between 15 and 16 times earnings and 24 and 25 times earnings. The complication is we're growing quite quickly. You know, we compounded 100% of your revenue growth for a very long time. Now, for years, have been doing 30%. There aren't a lot of companies on the S&P 500 growing at 30% a year. So I don't know how much credit you give to that, but I think that's roughly the right multiples. So on a cap rate you're talking about 7.5, 9, 10, maybe you could get down to 6. But it is true that on a standalone basis it's unlikely the flex portion of a building on a management contract would get a 4 cap rate or something like that. The only thing I would say is, you benefit the performance of the rest of the building. So you might say, okay, on a standalone basis, it's a 6 or a 6.5, but you're benefiting the rest of the building so you give it credit of 1 or 2 and you're in a very good spot. A little back of the envelope, but I like that comparison.
Spencer Levy
The last question I'm going to ask you is going to look, instead of the external look, the finance look, which is my bread and butter. I want to go inside the space for just a moment. And the changes that we've seen recently. And Jamie, you and I have talked about this at great length, about the ratio in that space of the traditional coworking open space versus conference rooms versus individual offices, and those ratios are changing. And the ratios are changing because people want more conference rooms, they want more individual offices. What's your experience been?
Jamie Hodari
I would say, and this is not unique to Industrious, but the evolution of the types of spaces people use, there's a very concrete theme I can describe, and then a more philosophical one. The concrete theme is, in the depths of Covid people said when people come back, they can get their work done at home, so therefore when they come back, they're going to want to interact. They’re going to want to sit on couches and talk about life. And that is kind of true. But in general, it's also true that people are on a lot of zoom calls, that people got used to not being bothered by the colleague next to them all the time. So I would say the space type that has fallen out of favor in workplaces is more generic, like sit at a desk workplace in a big pit. That is not particularly appealing versus working from home. The space types that have increased in demand are interaction spaces. Really beautiful vignettes where you can have a sandwich together and hang out and listen to some nice music and individual private spaces: pods, booths, etc. So the very thoughtfully designed spaces right now have less of the big open floor plan, rows and rows of hundreds of desks, and they have more hangout space and then more individual focus space. That's the sort of concrete reality. The more philosophical one is, people are willing to move around more than they were pre-COVID. There was a lot pre-COVID of, I work at desk 41. I'm going to go sit there for ten hours and then leave. No one wants to do that now. People are more used to moving around, so they want to work for two hours, then go out to lunch, then come back, meet with some people instead of just work at a standing desk. And as a result, there's a lot more demand for workplaces with seven, eight, ten different modalities of space types that people can, using an app or just walking around, can use in real time to fit the type of work they want to do in that moment. That's the dream office right now, is a panoply of choice that you get to sort of walk and work in whatever space your heart desires, versus being forced into one particular type of space.
Spencer Levy
You build your own adventure. And Enrico, same question.
Enrico Sanna
We've been doing a lot of work on this topic, and because definitely post-Covid, I think that the focus on how people work has increased, and both from an employer but also from the employees. And we think that there are five work styles that are clear in every day's work life, which is focus, collaborate, socialize, learn and then recharge. And we think about those five work styles, and we think about the different ways we can provide to those work styles as people come to an office. And what I will say is that therefore, the mix of how you space plan, you layout and what you provide needs to tailor to this. Because I think it's wrong to think that somebody can organize their day to say, okay, on Friday I'm only going to do focus work. On Monday, I'm only going to do collaboration. On Tuesday, I'm only going to do learning. I mean, the work days are much more fluid, so you need to provide a work environment that allows you for the fluidity through the day, not just by day. And so that's kind of the focus of everything we build. The other point that we make is, I think when people came back post-Covid, because of agile working or flex working, we’ve seen a number of companies going to hot desk, right? You don't have your own desk. You come in, you book it because people are not going to use it as much, etc. And I can see now through talking to customers, that has gone a bit too far for some, for many companies, because…. they say humans are a creature of habits, right? People like to go back to a desk where they can put a picture of their kids, the loved ones. They can leave their shoes or trainers under the desk. There is a sense of belonging that is very important that we need to embrace in the workspace. So I think we need to make sure that people feel that they belong to this workplace. They feel like they feel in the workplace, like they feel at home. And therefore the personal aspect in the tailoring of a few spaces that they feel really mine are important. And therefore I think we’ve got to go back to think about what that really means. And I can see why some people are starting to hate the hot desking model.
Spencer Levy
The way I frame the before and after Covid and thinking about workplace is, I consider Covid the metaphorical equivalent of a meteor hitting the Earth. And if you think about the state of the Earth as pre-meteor and post-meteor as the same, think again. And some of the old school ideas that may have been in vogue long ago, which is, has more individual space, may come back in vogue today because of that experience. Is that a fair way to put it, Enrico?
Enrico Sanna
Yeah. Yeah, absolutely. And I think we’ve got to be careful that we don't project the future based on the last two quarters, because you've been hearing about the death of the retail, the death of the high street. Right? And everything was going to go digital. Everything was going to go online. Digital has changed the way people shop, without a doubt. But I can point out to a number of very successful retail operations, land based retail operations that combine digital with land and everything to create a very successful customer experience. And so while some big box, big name, big stores have gone bankrupt, we have a partnership through our business with what used to be the previous owner of Selfridges. And Selfridges in London, for those of you who don't know it, is this incredible experience-rich retail spot that everybody loves and the business has done phenomenally well. So, I just, when we talk about offices, when we talk about things, I think we run the risk of putting everybody under the same lens without understanding, these are complex businesses and there'll be winners and losers. But I fundamentally believe that if you stay focused on what the customers want and you continue to listen, you continue to think about their needs, you continue to evolve it, you are going to be successful in this sector.
Spencer Levy
So that's a great wrap up on the comment, Enrico. But Jamie, I'll give you the opportunity for your wrap up thoughts, looking forward in what we're trying to call the flex or the business as a service industry. How do you see it going in the next couple of years?
Jamie Hodari
First, let me say I love your meteor comment. I think a lot about when you're in middle school and you learn about evolution, the way they describe Darwinism is, it's slow, you know, each generation slightly changes based on natural selection. But then there's the biologist Stephen Jay Gould, who said, actually, it's called punctuated equilibrium. If you look at the fossil record, it's not a slow change. It's that there's very little change. And then there'll be 50,000 year periods or 2 million year periods where everything transforms and you go back. And I think oftentimes we don't think of the world that way. It's like, things can’t possibly have changed that much in the last two years, when they didn't change that much in the 15 years preceding it. But that's actually exactly how evolution and change happens. And so, it's just interesting to be in a moment of punctuated equilibrium, where the scale of the change that happened feels very real and feels very durable and is part of what's setting up this sort of future of the flex industry. If I had to predict where it's headed, I think you'll keep seeing compounding, consistent growth by flex providers. It's going to concentrate into 3 or 4 global businesses, just like every other big business services sector. It'll be IWG, WeWork, WeWork will come out of bankruptcy. Like Delta's my favorite airline. They went bankrupt in 2007. They're still around and doing just fine. I think WeWork will….
Enrico Sanna
It's also your mother's favorite airline, I think Jamie.
Jamie Hodari
And it’s also my mother's favorite airline. Delta. I mean, you know, Industrious. And then, you know, I think potentially TOG/Fora, etc. But it'll keep growing, but it will also concentrate.
Spencer Levy
Well, what a terrific discussion. And I want to thank Enrico Sanna, CEO of The Office Group, joining us from London today for a terrific discussion. Thank you Enrico.
Enrico Sanna
Thank you.
Spencer Levy
And then I want to thank, of course, our old friend. I think this is his third visit to the show. Jamie Hodari, CEO of Industrious. Thank you, Jamie.
Jamie Hodari
Thank you. Great, as always.
Spencer Levy
Always great to have you, Jamie. For more on the topic of our show, please visit our website, CBRE.com/TheWeeklyTake. Drop us a line to let us know your feedback and what you're interested in. You can also share the show and subscribe, rate, and review us wherever you listen. We'll be back next week with lots more from the world of commercial real estate. We hope you'll join us then. I'm Spencer Levy. Be smart. Be safe. Be well.
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