Spanish Eyes: Reimagining the Future of Work and Cities in Spain

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Spencer Levy
I'm Spencer Levy, and this is The Weekly Take. To our listeners in the U.S., we hope you had a very happy Thanksgiving and enjoyed a taste of pre-pandemic life with family or friends -- or something close to it -- during the holiday. And speaking of getting back to normal, I just did something else I haven't done since before the lockdown, an overseas business trip, my first in almost two years. In my travels, we also took the show on the road for our first ever on location international edition. I stopped over in Spain, where I appeared on an interview show produced by CBRE’s team in Madrid. That's where we recorded the conversation you're about to hear. On this episode of The Weekly Take. We bring you a crossover podcast with the host of that program, transatlantic perspectives on a dramatic year in real estate. 

Javier Chico Palazón
And that leads me to another key word of 2021, which is the experience 

Spencer Levy
That's Javier Chico Palazón, the host of Al Día con CBRE and the director of strategic pitching for CBRE, Spain and Continental Europe. In his primary role, Javier is a communications coach, analyzing and advising on public speaking, messaging and storytelling to win business, a set of skills that's been changing with the times.  Javier and I will talk about that. And we'll survey the international scene of the real estate business, sharing observations on a range of topics and trends: remote work, ESG, sports complexes, digital technology and more. A couple of program notes as we get started. First, we recorded this just before the Omicron variant broke into global headlines. The fact that this development was unknown to us and its impact remains evolving and uncertain provides important context for our conversation. And second, the show is a bit of a departure from our typical format. Javier takes the lead at the top of the show. Then I put my host hat back on to bring it home. Coming up, we drop in as Javier asks me to reflect on the past year in our industry with an eye on what might lie ahead. That's right now on The Weekly Take. 

Javier Chico Palazón
I remember a year ago, more or less speaking with you, you said I believe the future of office will be more like the past than people are selling. That is going to be anything change from January 2021 to now?

Spencer Levy
My basic point of view remains the same, that I believe the future of office is more like the past than we think. And obviously there's going to be changes to wellness, a healthier office environment, more environmental consciousness, things like that are going to change. But people are going to come back. I'm here in Madrid right now and this office is almost full. I saw the same thing in Chicago. I saw the same thing in London. And people are coming back. Why? It's not to get stuff done. It's to get productive stuff done. The higher level work, the creative work, the collaborative work, the learning, how to network, the learning, how to communicate. All those things are done better in the office. Can you work from home? Sure, you can. You can get stuff done. Now you should know I went to the Cornell School of Industrial and Labor Relations, and I realized going back to my college education in the 1980s that what we're dealing with today is not a real estate issue. We're dealing with a labor management issue. And what's happening today is that Labor has gotten more powerful. And why? Because when we studied Labor back in the 80s, we made two key assumptions which were false, and those assumptions was that Labor had perfect information and Labor had perfect mobility. Not true in the ‘80s. True today. And what you're seeing now is Labor saying, We want more hybrid. We want to work from home more. Because they have the power in which to do so. But I think that once we're past the COVID crisis, you're going to see that power dynamics shift back. It will never go all the way back and you will see more hybrid, more flex. But ultimately, it is a Labor-Management issue more than it is a real estate issue, which is incidental. But putting all that aside for a moment. Our bottom line is that the reduction in office space overall taking everything together will be about nine percent. But it will differ by industry. It will also differ by demographics as younger folks and folks that are empty nesters are going to be in the office more than folks in that middle range that live in the suburbs and have to deal with child care and related issues. 

Javier Chico Palazón
That reminds me of another thing that I heard in one of your episodes: Millennials -- and you smile because you know what I'm going to tackle -- you said something like, you know, the average 40, 50 year old guy that has been successful and when he wants seven days a week or five days a week, hard worker because that's what he saw from his legacy, parents and stuff. But there is a huge breech with how Millennials are. And that leads me to the really key word of 2021, which is the experience. We have to create experiences of the office that they can not have at home. How have you seen that not only in the office environment, but we hear it from the retail. We hear it from the shopping centers. We hear it from the hotels. We hear it in industrial. How have you seen that? 

Spencer Levy
Well, experience is both within the built environment -- in the office -- and it's next to the built environment, which could be another form of real estate, could be retail, could be a hotel, but it could be just the cityscape itself. One of our truly great colleagues who I'm proud to call friend of mine Mary Anne Toghe, I asked her once, What is the number one amenity of New York City? She said, New York City. And why is that? Because people don't go to New York City to work out of their apartments. They go there to work in the office, but they also go there to experience all of the great cultural amenities. And there's a fancy economics term for this. We had a few folks on my show -- Joel Kotkin and Richard Florida -- that talked about this economic thing called the agglomeration effect. And what that is is the combination of talent, capital, infrastructure and live-work-play all in the same place that brings people together. But focusing on the built environment for just a moment because we're talking about the office space. You're right, people don't just want to come here to get stuff done. They want to come here because their colleagues are here. And, yeah, they want to come here in a very not just pleasant environment from light and air standpoint, but an environmentally conscious environment. I see lots of natural woods out in the Madrid office here as well. One of the things that I think is a very positive change of younger generations is they are much more socially conscious than older generations. And I think a lot of that's rubbing off on older generations as well. So yes, there are some work habits of a younger generations, a lot of us, older folks, is like, oh yeah, you know, everything's changed, nobody likes to go to the office anymore. I don't think that's the case. I think that people just want to have a more balanced life. Both live-work-play, but also a more balanced being, taking into consideration the social issues in the world in addition to their work issues. 

Javier Chico Palazón
How do you see ESG not only in the office environment, but more into the people journey, customer journey, employee journey? We're analyzing that journey from beginning to end. How do you see real estate can transform the life of people enhancing the ESG? 

Spencer Levy
Well, I think there's two answers to that question. One is a micro answer, which relates to the built environment. And the other is the macro answer, which relates to the market in which you sit, and then the world at large. So let’s start with the micro environment for a moment. So I think the way that ESG has changed -- first starting with the E -- is that what used to be the gold standard for E -- environmental consciousness -- was getting a LEED or an Energy Star rating on your building. That's changed. And it's changed because now and frankly led by European investors, they now want a measurement system more akin to the Paris Climate Accords or to the U.N. principles on responsible investing that measure your water energy usage over time. That's change number one. But that change hasn't finished changing. Now people are looking at the total carbon footprint of the building, which is why people are putting things like solar panels on buildings. But they're going even further than that. They're looking at the materials in which your building was built, not just in this beautiful built environment we have here in Madrid, which has beautiful natural woods. Even the framing of an office building we had a guest on our show from Hines was talking about cross laminated timber and why are they building buildings with wood, even though they're a little bit more expensive? Because tenants were walking around the building, touching the building. Literally. When's the last time you touched the building other than a doorknob, and you don't even want to touch that? Because they got an emotional connection. So that's the E part of it. The S part of it -- social -- is something where there are two basic ways that people handle that issue. One is the way that most people are handling it is through hiring practices, more diversity and that goes all the way from the board level to the corporate level, all the way down to subcontractor. The way that less people are handling it is through so-called Impact funds, where they will directly target a distressed neighborhood or socially beneficial asset class. Then there are two new letters R and W. By the way, the reason why I don't talk about the G is the G and the S pretty much merged in real estate at the moment. But the R is resilience. Is your market resilient to storms or forest fires? And then W, enormously important: wellness. And it's not just making your building weller -- I don't even know if is a word -- but weller in terms of better water and air and light. It's also having to do with how do you measure that? So we had a guest on our show the other day on a book called Healthy Buildings. And what was beautiful about that book was that it not only talked about the water and the air, talked about how it materially increases the productivity of the average employee. So which brings me back to my last point, which is when you look at ESG plus our plus w all enormously important. But when investors look at those issues, they're still looking at it through the prism of ROI, or return on investment, getting the same return on investment on those types of things as they would for other type of capex. 

Javier Chico Palazón
Yes, actually, I remember one episode that we had about the future of shopping centers. I had two experts from CBRE: one architect and the head of shopping center development in Europe. And they started saying, OK, it will be a place to go, not to buy. No 300, 400 cars in the parking lot. More theme parks, but very social, very energy, very everything. That would be in the DNA. But they said one thing this has to change both in the face, but also in the KPIs the investors used to see the return. Cannot be just financial, traditional way of measuring that. 

Spencer Levy
Well, this is where we might differ, OK? Because I think that notwithstanding, there may be a change of the tenant mix within a shopping center. I think you still are going to have the traditional way of looking at return on investment for that tenant mix. Now, one of the beautiful things about restaurants and indoor ski slopes and other forms of entertainment. They're fun, they're great. They're cool. But I say this with no disparagement to my restaurant or other tenants. They're much more challenging tenants, generally speaking, than our traditional users of space. They go in and out of business very quickly. There's a high amount of capex to bring them in. So the challenge of a shopping center owner, saying Well, what do I do if my restaurant percentage goes from 20 percent to 30 percent, or maybe even 40 percent if you include entertainment options? I'll tell you what you do. You create a mixed use community because what we're seeing now in many shopping centers, either those that are built from scratch, but particularly those older shopping centers, we're seeing them create a virtual live work play environment where they're going to have the tenants, both traditional and restaurants, that they're going to build multifamily or other housing right around it. And/or they're going to put office on top of it. So yes, more entertainment, more restaurant. But to make up for the loss of revenue associated with more traditional retail tenants, they're now going to have these mixed uses of office multifamily and in some cases, industrial as well, but industrial is going to have to be in the back of the facility, not the front, because unfortunately big trucks cause a risk to pedestrians. 

Javier Chico Palazón
The word mix. Everything is mixing. The office wants to build experiences with the amenities more like a shopping center. We have seen even sport facilities becoming not only a place that is used for the match day, but also during the week for even co-working or even other uses. Do you think the mix is something that is global or there are places like in America, in Europe, in Asia that that mix has certain red lines or certain barriers? 

Spencer Levy
One of the things you mentioned, I think, is a critical factor which I'm seeing globally, even here in Madrid, which is the use of a sports facility as the center of attention to other uses coming around it, including multifamily office, retail. Wembley Stadium, great example, built a ton of multifamily around that. Where the Washington Nationals play in Washington, D.C. Tremendous amount of multifamily, retail built directly around that. I've seen the same type of facility in Vancouver. I've seen the same type of facility in Kansas City, Missouri. I've seen the same type of facility throughout the Nordics. The bottom line is having these sports arenas is now as much of a real estate play as it is a sports play. And interestingly, last week we had an episode on golf. And why do we have a golf episode on a real estate show? Because golf or the golf amenity is more of a real estate story than it is a golf story? When you take into consideration that many of these are built within single family housing communities and/or in connection with a large hotel. So your question about is mix the future? Yeah, because mix is a mini version of this agglomeration effect that you get naturally in a big city, but people can build it artificially by putting them even into suburban environments. And if they have put these things together, we call that an urban-suburban environment, a place. If you were to look at the United States like a Jersey City, a Long Island City, but even believe it or not, markets in the United States like Cambridge, Massachusetts and San Jose, those are both technically suburbs. But they are both urban-suburban as well. 

Javier Chico Palazón
Spencer, this mix is complex. Activating those spaces is very difficult. The management, the property management of those places require a different degree of expertise, of the data of measurement of that experience and creating something that is unique. How landlords, owners of spaces? How tenants have to tackle that? Because they have to start to work together. 

Spencer Levy
Well, I will start from a different perspective with the same asset types. How do you take that to the bank and get a loan on it? That is really the fundamental question of mixed use in the beginning, which is why most or many mixed use facilities have separate owners and developers of the hotel component, of the office component, of the retail component so that the banks can look at them separately. We still have a challenge financing them all as one piece of the same puzzle because they're all so different fundamentally. But going back to what I said earlier about why New York is the best amenity in New York. Why Madrid is the best amenity in Madrid, it’s a cool city. Barcelona is a cool city to walk around from the landlord's perspective. Let me be more specific -- let me change that a little bit -- from the occupiers perspective. They're not just looking at the building anymore. They're looking at the neighborhood in which it sits. And that neighborhood isn't always the central business district anymore. I have a terrific client in the United States called Highwoods Property. Ted Klink, their CEO, was on our show and they changed their definition of business districts. They don't call them central business districts anymore. They call them better business districts. And a better business district may not be in downtown Madrid or downtown New York. It might very well be in a market that was a second tier market five, 10 years ago, but its first tier because now it has live work play characteristics. So in the United States, you'd go to a market like the Fulton Market in Chicago, which is outside of the central business district now, may be the hottest market in Chicago. You go to Atlanta and the two hot markets used to be Buckhead and downtown Atlanta. Now it's Midtown, which was sort of the forgotten other market. Now it's the hottest market in Atlanta because they realize it has great infrastructure. It's got Georgia Tech University right there -- and by the way, having a good university nearby, an enormous driver of these live-work-play stuff -- has the Ponce city market there, which is one of the great retail locations in Atlanta. And then we have some major users who have moved there as well. So I think the key amenity isn't the building. And I'm in the real estate business, so that might be a little bit of blasphemy. The key amenity is the location in which it sits. And funny story about that. So San Francisco. Three years ago tried to ban the construction of new cafeterias in office buildings in San Francisco. And you think about the like, well, well, Why? Because the people that were walking into these buildings in the morning and weren't walking out until late at night, and were not soliciting the local businesses for lunch or for dinner. And so I think it goes back to this S thing a little bit. I think that employees are going to want to be in urban environments, get out of the office as well, not just for the fresh air, but also for the social benefit of soliciting local businesses. 

Javier Chico Palazón
These experiences of mixed uses that we're talking about, they're not just in the physical world, but also in the digital. And omni channel is one of the words that we've been listening for the past couple of years. We're more digital than ever, and data centers is one asset type that you've covered in The Weekly Take a couple of times. How do you see data centers growth as a solid market both in the States versus Europe? 

Spencer Levy
Clearly, our creation of, use of, an analysis of data is growing exponentially and has for years, which means you need more places to store it and analyze it. Now there's a couple of key facts about data centers that people need to understand. One is many data centers need to be co-located. They need to be right near each other. Because speed matters. So if you're an equity trader as an example, it matters if your data centers right next to another one. Because that nanosecond, if your data center is 10 miles down the street, could cost you your trade. The speed of light is the only limiting factor unless Einstein was wrong. So that's why you see clusters of data centers in places in the United States, like northern Virginia or Dallas. The other factor you need to take into consideration about data centers -- not that they're not going to grow, they're going to grow tremendously, but they're going to grow in a fragmented way beyond the co-location because different countries have different laws on privacy. But the other area --and I think this is going to be the critical issue for data centers moving voters and secondarily for crypto miners -- is energy usage. The energy usage of these things, data centers, crypto miners is enormous. Something like four percent of all the world's energy. And how do you deal with that? Well, one way you deal with that is you put them into northern climates that are colder because cool is a form of energy. Another thing you can do is stick them under water, which many companies have already tried because cold water is another cooling device. Another area that's becoming more interesting and I know it's controversial is should we reconsider nuclear energy as a means of powering these places? Because notwithstanding some of the horrible disasters that have occurred over the years, technology has gotten better. And nuclear, if done right, is clean. 

Javier Chico Palazón
Spencer, you've just mentioned the crypto miners. And bitcoin, blockchain, the new finance system, the tokens, the altcoins, all that world is something that is trending. Everyone is talking about tha. Big companies, software companies are backing up many of these projects. And some people also talk about the tokenization of assets and assets in the real estate to challenge the traditional investor world. How do you see that? 

Spencer Levy
Well, first of all, I love the technology behind blockchain. I love it because it's not just intellectually interesting. It will make the world more efficient to be able to transfer money from place A to place B more efficiently. The current system is probably was built in the 50s from wire transfers or otherwise. That's the good news about it. Here's the bad news about it. There have been too many terrible incidents with using bitcoin and other forms of crypto as essentially a criminal facilitator that it needs to be regulated. I don't see any future of using these things without some form of regulation that will enable you to do so safely. Using the great technology, but doing so safely. That's how I see it. And then in terms of selling assets with bitcoin versus cash, you can buy a office building today with a box of puppies. I mean, t would have to be a very large box of puppies, but it's just another form of value. Right? But the ability to trade hard assets using a new form of currency that's more efficient, I fully support it if regulated appropriately, because it will increase transaction volume. Now, let me turn the questions around here. Well, I'm an American, and I am just thrilled to be back here in Europe, being here today in Madrid. From your perspective, how's it going here in Madrid? 

Javier Chico Palazón
Well, you have to have a look at the whole Europe first at the beginning of this situation that we've all been through. Madrid was one of the hotspots, together with Italy, the Lombardy area. So we've suffered a lot and that situation has led to a lot of consciousness about this. Now, Spain is one of the top countries in percentage of vaccination, the lowest or one of the lowest in people that you know, until vaccines and stuff like that. So that is generated a situation in which it is a safer environment. We have colleagues from CBRE from other countries in Europe, traveling to Spain, traveling to Madrid, being around the office, and they say, I haven't been in the office yet. So we are in this safe environment. But step by step.First we had a different days that you could come to the office. Then they started to increase the number of people that could attend. And now we're not saying that we're close to before pandemic, but I think we are at 70 percent. Now we're not the same people process of change. We've changed how we work. Two and a half years ago, doing a video conference, that was: Why? You do you do a call. Now, we don't live without that. But it's so seamless. So in terms of COVID wise, we're doing really well and very safe. I hope that we maintain these in the future, but I am amazed of how much we've changed and I think we're more efficient. 

Spencer Levy
Well, I would agree with you that video conferencing or its predecessor telecommuting -- it’s hard to remember a term like that's only 10 years old, right? -- has made us more efficient. But I do worry that it has made us less productive. I do worry we've lost so much of that human interactivity that it's hard to measure its benefits. So while video conferencing works, it doesn't work while I'm walking from here to the coffee machine with you. It doesn't work when we go downstairs afterwards for another cup of coffee. By the way, I like coffee if you haven't figured it out yet. So I think that's great to hear. But let me ask you one other question about Spain. Let me ask you a real estate question. Coming from the United States, we see different real estate opportunities in Texas, Florida, New York, San Francisco, different depending upon the talent base, the quality of the real estate. Just generally speaking, because some of our listeners are going to be in America. How would you see Madrid and Barcelona positioned against some of the other great cities of Europe, like a Paris, like an Amsterdam, like London? 

Javier Chico Palazón
As you know, I lead the pitching department and I see that from the pitching perspective in many investor pitches that we've gone through in the past 18 months. And Madrid and Barcelona are still considered one of the top five of seven to 10 at least locations for investors and typically for office industry in the first and second rings of main cities. And even retail stuff. I mean, they are attractive cities, but they're not at the same level, probably as London or, you know, the top cities we had internally the top cities program. Madrid and Barcelona are very attractive from the investor point of view. But you've got peculiar things like Barcelona is a place in which startups in the 22 Arts District are positioning, and they are attracting a lot of new tech and life sciences, pharmaceutical, modern fintech, prop tech and that kind of stuff. So you've got differences. But main headquarters of big companies are also happening both in Barcelona for the whole Europe or in Madrid also. So they're becoming hubs to attract talent, which attracting talent is something that is in the mouth of everyone now in the corporation, they occupier world. How do I attract talent in this new tech talent war? In that, Madrid and Barcelona are very well located. And also with this kind of digital nomads tribe, people that want to work, but not here, they want to travel around. I don't think they want to travel around with rain pouring over their heads. So Spain is a really wonderful place, with a lot of sun hours for the year to be located in Madrid or in Barcelona to be able to travel around. 

Spencer Levy
So does the rain in Spain fall mainly on the plain, not in the cities? 

Javier Chico Palazón
Yeah, that's it. And Spencer, before finishing, I want to go deep in one thing that you've said, which is the emotional part of it. Yes, we might be more productive because we save time in commuting. But from my perspective, I remember in the 6th of March, I was in Hamburg supporting LatAm pitches. And that was done face to face. Then I came back and we had a big industrial portfolio sale in Spain, one of the biggest deals. And in the middle of the preparation of the pitch, they shut down and we had to wing it. How do you do this online? And the first thing is that you lose the contact. You lose the empathy that you can generate in the client between people. Because you don't have eye contact. I constantly tell people, look at the camera. Don’t look at the look at the person, look at the camera. Don't look at the person, look at the camera because then they perceive that you're looking at their eyes, they're looking at them. So we've started to see pitches in which the people didn't turn the camera on. Violent situations. Hostile environment for some people that weren't really used to that view of the world. And I'm very happy that we're going back to the face to face. I know that you also worry about this part of the empathy generation. It's part of my job every day because decisions are not taken, only quantitative. They also mean not only rational, also gut feeling, also emotional. Because at the end of the day, the players in one pitch, we are not that different from each other in the basic commodity. But in the rest of the value that we propose. part of that value is emotional, is relationships and these digital barrier is in the middle. 

Spencer Levy
We would like to think that all decisions made in the business context generally, but specifically in real estate are mathematical. It's by the book. You can quantify it. That is not true. Most business leaders will make the final decision with their gut, not with their head. And you need to know how to get there. And you mentioned a very good one, Javier, with respect to eye contact. So, Javier, I hope you don't mind. I'm going to ask the same question. I ask all of our guests at the end of the show, which is a crystal ball question. Given all that we've been through with COVID, the changes in technology with Zoom or certainly the greater use, hybridization of work, put yourself in your same chair five years from now. Looking back, how do you see pitching changing? How do you see client relationships changing? And how do you see them staying the same? 

Javier Chico Palazón
Five years, two years, seven years from now, I mean, we've already shifted from a more traditional way of taking decisions. One of the things that we've seen in the short term is that, as you were saying, this huge thing that we've gone through -- those scars not only in the emotional part, but also in the business part  -- have trembled the foundations of how people took decisions. And now there's a lot of uncertainty. Before this situation, we were the trusted advisers of many clients. And they came seeking information. Now when they come, they are more knowledgeable because they've worried because of that uncertainty. They've worried much more to know. And they don't ask only one, they ask multiple advisers. And the amount of content that is accessible online is growing and growing. So now you can reach the latest case studies or the latest trends easier than before. And in the future, it will be easier, easier and easier. So that uncertainty, I don't think, is going to leave. I think that is changed how people take decisions. They're not going to trust that much. They're going to be more learning by themselves. Another way of understanding how pitching, how taking decisions, how we compete to win business have changed is it's got to be with the emotional part. It's got to be with the human relationship. This digital world is going to make it difficult to build that human relations. And we will have new ways of building that relationship because the new generations that now are entering the professional world or in the first years of their professional career, they are ready to build that emotional. But I'm not ready to build my whole social world in social networks. I can't. But my kid will be. And my nephews are -- and they're 22, 23 more or less -- and they're in the first years that people will be able to build human relationships on Zoom, on video conferences, on the Metaverse, wherever. So are we going to get old too soon? 

Spencer Levy
Well, I don't think we're going to get too old too soon. You can't teach an old dog new tricks. I certainly try to learn new tricks. I've been very big on social media, certainly on LinkedIn. And that was a trick I did not know until three years ago. But I saw this new medium in which to communicate with my clients, and it's worked out very well. The other thing I would suggest five years from now, looking back, one of the fundamental changes during COVID is the level of professional within a firm that cares about their real estate, particularly from the occupier side. I would say that historically real estate was a function that was a cost item. may have rolled up through the chief procurement officer. Now not only is the H.R. department involved, but the C-suite’s involved because they realize that real estate is more than just four walls and a place to keep out the rain. 

Javier Chico Palazón
Yeah, definitely. I've also seen that change. I mean, decisions are not taken by the CEO. Now everyone's involved because it impacts. They've understood the value of real estate can impact every aspect of the business. 

Spencer Levy
Well, Javier, once again, as an American traveling in Europe for the first time in almost two years, you've been tremendous hosts here in Madrid. I want to thank you and your colleagues for having me. And it will not be two years until I'm back again. 

Javier Chico Palazón
Promise. 

Spencer Levy 
For more on the subjects we just covered and more on the two podcasts that came together on this episode, you can visit our respective home pages. Javier’s could be found on CBRE.es -- where you can go and then search for it by name. Al Día con CBRE. Our program, of course, can be found at its usual home CBRE.com/TheWeeklyTake, as well as on all major podcasting platforms and more. As always, we invite you to share the show, subscribe rate and review us wherever you listen. Thanks for joining us. And muchas gracias to Javier, along with listeners from Spain and beyond. We'll be back to regular programming starting next week, including shows on the retail sector and looking further ahead. Our outlook for 2022 and more. For now, I'm Spencer Levy. Be smart. Be safe. Be well.