ABOUT THIS EPISODE
Location, Location, Location are no longer the most important words in CRE. Joe Brady, CEO of the Americas for the Instant Group, discusses what it means for CRE when work can happen anywhere, and why flexibility is fast becoming the new top priority for corporations and real estate companies everywhere.
Frank Cottle [00:00:17] This is Frank Cottle and welcome to the Future of Work podcast. Our guest today is Joe Brady. Jo is the CEO of the Instant Group of for the Americas, and he’s a highly experienced real estate professional.
Frank Cottle [00:00:31] Most recently, he was the head of real estate for Walgreens, where he was responsible for a 150 million square foot portfolio with an annual budget of over three billion dollars.
[00:00:43] Prior to Walgreens,he held several senior roles at JLL and was a founder and partner of the Standard Group, which was sold to JLL in 2008. During his 30 years in the sector, he has had diverse experience, growing high volume retail, delivering global rollout of office space and distribution centers, and driving portfolio optimization and property technology leadership. Jo leads the Americans business for the insurgent group in its Chicago office as part of its expansion across the Americas and Jo is a global trust of the trustees of the ICSE, a member of the U.S. ally and Kornet Jo welcome very much to the program.
Joe Brady [00:01:25] Thanks, Frank. It’s great to be with you.
Frank Cottle [00:01:28] Joe kind of interesting, you and I have a little bit to counter posing things I see in your resume and I see everything that you’ve done, everything except flecks of Allwork.Space, that’s all.
Joe Brady [00:01:41] Yes, that’s true.
Frank Cottle [00:01:42] This is the perfect time in the perfect position to round everything out that you do. And one other thing I notice is a lot of people, the flexible workplace sector, really don’t have the broad based corporate experience that you bring. So rounding those things out, I think will be really a great contribution, not just to the instant group, but really a contribution to our industry at large. So thank you for joining us. It’s great to be here. Tell me, what sort of general trends do you see from the perspective of instant office? What? What? Basically, what do you just see happening out there in the world?
Joe Brady [00:02:22] Yeah, Frank, I think it’s interesting. If you don’t mind, I just want to comment on the lack of flexibility in my work experience while at Walgreens running a very large portfolio. I really came to learn that it’s very difficult to gain optionality to future proof, an exceptionally large portfolio. It was like captaining an aircraft carrier. Very, very difficult to turn. Far from agile. And given that, you know, some of the trends and issues that are happening, you know, we are absolutely, positively in this age of acceleration where things are changing faster than ever. And so as a result, when you look at corporate real estate being demonstrably linear, unchangeable and flexible, there is there is a widening gap between the rate of change that all of us experience every day as as consumers or as workers or just as citizens and what the built environment today was, was constructed for. So there’s this massive deviation that’s happening. And I found that the flexible, agile workspace industry is primed to help really close the gap between where the world’s changing fast and where traditional corporate real estate is today.
Frank Cottle [00:04:01] Well, you know, I would agree with that. I think that some of the biggest proponents for flexibility in the workplace really won’t be the historic occupiers of business centers and coworking centers so much as a government and large corporates that are having to rethink massive, massive portfolios in order to make progress not just on the real estate sector, but overall within their corporate environments.
Joe Brady [00:04:33] But I think that’s right. I think there’s going to be a rapid move toward agility and flexibility, as we talked to and I certainly come to the table with a demonstrably CRC leader perspective. And I see that the idea that occupancy can be either the second or third largest cost for a company.
Joe Brady [00:05:02] People are starting to rethink that. And there’s been this awakening. We did some research interviewing 60 CRT leaders around the globe. And one of my favorite quotes that came out of it is Work from home is no longer the enemy of the C Suite. And people are starting to think about work differently. You know, the idea that we will be going to work after this last six months is quite humorous, a bit of a misnomer, because I think all of us are finding that work can happen wherever you are. And unfortunately, some have really had to battle through the pandemic. Others maybe had it a lot easier. But either way, we found out that there was a massive inversion from 98 percent of people working in some level of an office environment to 98 percent of people working from home.
Joe Brady [00:06:01] And we didn’t miss a beat. The economy continues to move forward. And so the Cove IT portal has thrust corporate America into the future. And we’re here now. And now the question is, what are we going to do about it? And how is that going to impact the existing operators that are out there? What is it going to do to traditional real estate owners and how they view their asset heavy portfolios when, you know, really the working class teams, the working folks are going to be focused on, you know, where can I work today? That’s going to best match the modality of the work I’m doing. If it’s heads down, the concentration task oriented, I might as well stay at home. Why get in a car or take a train or commute to a high rise or go to a space. And I think there’s a place for that. There’s also a place for the hubs. And for corporate America, particularly having brand and culture preserved and expanded, there will be a place for those core offices. But I think we’re where we’re going to find extreme growth, particularly in the flexible office market. Is this idea of work near home and in alternatives to going to a high rise. That conversation is happening all over the world. And it’s more pronounced in places like New York, Chicago, San Francisco, London, Paris, Montreal, etc..
Frank Cottle [00:07:39] Well, you know, I’ve been reading some studies on transportation, and I would absolutely agree, I think that recent study I just read on the London metro system indicated that if we’re going to practice the current pandemic rules of travel, if you will, that the entire metro system for greater London is only 16 percent efficient.
Frank Cottle [00:08:05] And other studies have indicated that people don’t mind going to work. I’ll say being in an office around others, that’s a fairly contained and a fairly easy environment to manage. For safety purposes and for all business purposes. What they don’t like is public transportation. So it won’t be a matter of being in the office as a problem. It’ll be a matter in many markets, such as the ones you recognize of getting to the office. That’s going to change everything. So the question is, would you rather be at the head of a metro station if you’re going to go with the location decision of a new center or on a nice bike path in a secondary or tertiary market?
Frank Cottle [00:08:53] It’s going to really shift the way we look at offices in that regard. Another point you make, I think, is is that fixed real estate is the third or fourth highest generally. Sometimes a second, but usually the third or fourth highest cost. And the other third or fourth highest cost. And it bounces back and forth in most large companies. So we’ve been saying for a while that there are no occupiers anymore in real estate. We’ve been saying this for the last three or four years, in fact, but that all. People in business today are now permanent travelers. And in your point of the hub versus the home versus the neighborhood facility, etc., we will all travel depending on the type of work we do from one type of facility to another, and they may be yards apart, miles apart or hundreds of miles apart. And we may use technology or we may use a physical means of travel. But that’s the biggest thing that we see, is that the understanding that people are not static in their work unless you’re a coal miner. You’re not going to work anymore.
Joe Brady [00:10:12] Yeah, I do think that notion of going to work is, you know, almost nostalgic now. And what’s interesting, you do have I love your cook coal miner analogy, but you do have in the financial services trading floors for financial services and insurance and other companies with call centers. And what those folks have found is that in the last six months, they’ve learned they do not need to be tethered to large either trading floors or call desks and call centers. And many companies are now saying, we think we could take 50 percent of a call center and have them work from home or have them work from an alternative location.
Joe Brady [00:11:01] And likewise, the trading desks have found that they, too, can be profitable, be safe and secure. And then actually have a quality of life.
Joe Brady [00:11:13] So I would say that from a safety perspective, I thought initially the notion of public transport and vertical transport would be two of the largest villains of our Cauvin world, largely because of what, Frank, what you were saying around separation and cleanliness and so forth on the public transport and then really the the friction involved in the vertical transport with with hordes of folks coming back to offices, presumably when, if and when school restarts. And in the fall, September, October, there will be limitations on the number of people in an elevator. And so that will be more of a nuisance. You know, a friction point from a time perspective. But one of the things that’s really being explored now in the built environment is really air quality. And if you think about how traditional buildings, traditional office buildings have been constructed, oftentimes they look at, you know, their homes, open air platforms.
Joe Brady [00:12:23] But you you think about it. You think about how often there is a fresh air turnover? And in many instances, you’re looking at only two times a day, morning and night. Compare that to a 737 that turns over its air every three minutes. Right. So I think companies and operators need to rethink and get facile with HEPA filters and nerve counts and all sorts of other acronyms relative to air quality and air safety. Because, you know, unless and I know in France was just mandated. And in Singapore I talked to my colleague Sean Lynch, who runs Asia PAC, for instance.
Joe Brady [00:13:11] They now have to wear facemasks in the office. So unfortunately, in the US, we can’t get people to wear face masks, you know, going to a Wal-Mart. And so can you imagine what kind of adherence would happen if we had to have them on in, you know, offices throughout the country? Although all the science indicates if everyone did it for three weeks, we’d probably be well ahead of this thing. So I think there’s still lots of challenges. I think there’s so many things we haven’t learned about this virus. All of us are armchair epidemiologists now. Right, because we watch cable news.
Joe Brady [00:13:46] But I do think there’s a lot more science to be learned, a lot more concern to be had.
Joe Brady [00:13:53] And I know all the operators and folks in corporate real estate are focused on employee health and safety first and foremost. And that’s kind of the most important amenity out there.
Frank Cottle [00:14:05] Not absolutely seems to be right on. Twenty two things that you’ve mentioned initially, remote work. And now health care. I know in our own company and we have three call centers.
Frank Cottle [00:14:21] We took a survey across our entire teams and the response from the team themselves was that they eighty three percent of the team members globally in our organization felt that they were more efficient as a result of our remote work programs as opposed to less. And that led us particularly to our call center structures to look at what we were doing and to the fortune that we have the technology with that sort of basis as a company. But to look at what we’re doing and reorganize ourselves to we’re now 50 to 60 percent of all of our operators and all of our staff. Time will be permanently remote, either in a works center or a workplace or in a residence.
Frank Cottle [00:15:12] But what the functionality of our case primarily is on residents is and we’re doing that really at the surveyed request, I might say, of our teams. And it is interesting to see that we’ve seen increased productivity overall as a result of an economic productivity unit, service, productivity, etc. I think others would be saying the same thing.
Frank Cottle [00:15:44] I don’t think we might be a little more formal in our approach, but I don’t think others are experiencing too much difference. The other thing that you mentioned that we did, we found was very easy to do was we met with the property companies where we office and even in our flexible workspace that we have in a number of facilities. We were able to very quickly put in HEPA filters and boost the airflow with hardly any effort whatsoever. We just had to think of doing it and then require that it be done by our landlord. And no one hesitated. It wasn’t expensive. It was very easy to do. So a lot of the things that people are talking about aren’t overwhelming problems are really quite simple. As simple, as you say, is putting on a mask. You can put a mask on your entire office space, if you like, with relative ease.
Joe Brady [00:16:46] That’s true, I saw an article where someone said they for 50 bucks, they were able to go to Home Depot, buy a boxman and I’ve got MERV 13 filter, put it on the intake side. And it actually did a remarkably good job of eliminating particles in the air. But, you know, really so I think there’s I think we just have to be more mindful and focused on it as far as I’d love to. I’d love your story. About 83 percent of your team members say that they’re more efficient in it. It just reminds me of, you know, if you’ve read Daniel Pink Book Drive where he knows, he dives into what makes people satisfied at work. And we all know it’s not money. People don’t work for money. And he really covers. Money’s nice, though, don’t get me wrong. But it’s an outcome. I think what where you have three key areas that people focus on. And the first is mastery. You know, are they able to be good and get better at their job? The second is purpose. The people want to work for something that’s bigger than themselves and have that connection. But the third and this is really important, this is where it ties into our world, is really about this notion of autonomy, where individuals have freedom and agency to control their own environment and get work done as effectively as possible. And so this is the idea of some old line companies that engage in presenteeism, you know, management by butts in seats. I think, again, all of that’s going to become quite nostalgic and historic because we are in the knowledge economy and a knowledge economy paired with a factory approach to office space, again, is just another area of incongruity that exists today. And so what we’re seeing and what we’re talking to our corporate clients about is this idea that, you know, work in a core office may happen once or twice a week. And when it does happen, you’re probably standing the whole time and you’re not going to sit until you leave because you’re interacting with people, you’re engaging with people, you’re collaborating, collaborating, you’re building cohesion. You’re driving creativity. And then there’ll be times when that same individual may work with the team. And that’s where I would say that the work near home, that’s where serviced office centers, managed office centers could come into play. I think that becomes a really important decision and an option for an employee because if you think about it, if you’re working near home, you’re generally a car or I like your analogy, bike-friendly, not mass transit reliant. And then typically outside of dense urban cores, you can find low to mid-rise buildings that are stair friendly and not elevator reliant. And so you’re cutting down on the commute time. You’re allowing a bit more of a balance toward life in the work-life balance. I think a lot of people over the last six months have determined that they know, they really like their families.
Joe Brady [00:20:11] I know this is the longest stretch I’ve ever been with my wife. We’ve been married twenty-two years. But, you know, as you said, I’ve just been a traveler up until now. But it’s going to be hard to get back on the road five days a week. And likewise, I think for employees, it’ll be good to be home for dinner and. Yeah. And so that’s it.
Joe Brady [00:20:33] I think there’s gonna be some really good parts coming out of this change.
Frank Cottle [00:20:38] No, I think there will be. It’s funny. You mentioned wives of the. My wife has decided that she’s going to be commuting to her office on her bicycle. She’s a very active and ardent cyclist anyway. So this is not new for her. And within her building previously, they didn’t allow bicycles and the elevators. A group, a group of people has gone to the building now to a mid, mid kind of high rise building. About 15 floors. And a group of people from various companies have all gone to the building. The building is actually segregated. One of their two freight elevators just for cyclists, because there are so many people that have that demand now and the people don’t want to leave them, you know, five, ten, fifteen thousand dollar bikes down on the bike rack. So a lot of bikes get pretty expensive if they’re really good. Bicycle’s Saenger. So the building’s actually catered to that and said, well, this is going to be important for our future to be able to service the needs of this part of our population. So that is, I think, coming along. You know, it’s funny using cycling as a Segway-like to talk about the customer life cycle for a moment. That was probably a lousy Segway, but I’m using it anyway.
Joe Brady [00:22:05] I like it.
Frank Cottle [00:22:08] At instant. What are you finding? Are you finding the life cycle of the flexible workspace customer is extending getting shorter? Status quo. What are you seeing as a result of all of these changes, not just pandemic-driven changes, but the whole wave of change that has been building and just crashed when the pandemic started to occur?
Joe Brady [00:22:36] I would say that more and more corporations are looking at the idea of flexible and agile workspace v a serviced offices or managed or, you know, a number of different options.
Joe Brady [00:22:55] I would say that we went from being on on-trend pre-coded to on target. Now, where it’s it’s no longer an experiment. It’s no longer, you know, sort of a pilot or a test. It’s a mandate. In other words, we have to get occupancy down. We have to become more resilient.
Joe Brady [00:23:18] We have learned that even our business continuity practices failed and didn’t deliver. And so I think there’s on one hand, this dogged determination to drive resiliency, agility, and flexibility into the portfolio. And that is that that has some headwinds, though. And those headwinds really are just the overall inertia that’s happening, whether corporates have large, long term leased or fee owned properties. And so it’s difficult to do the action. I would say that there is a massive degree of uncertainty where decisions, key decisions are not being made right now. Everything kicked can is being kicked. And unless and until we get some level of clarity around and particularly around the pandemic, although I will tell you that the U.S. political election is factored in, the civil unrest that’s been happening is factored in.
Joe Brady [00:24:28] I live in Chicago and I live in the western suburb, but see what’s been happening throughout the greater Chicago land area. And, you know, it is starting. Those areas of uncertainty are factor factoring in. So I think that you know, customers or clients or corporations in particular. And again, I attended a lot of my comments from a demonstrably corporate perspective, as opposed to sort of the smaller mom and pop type of users or entrepreneurs. But I would tell you that the corporates are now squarely coming in and focusing on driving agility, flexibility, and resiliency because they can’t afford to go through what they just went through.
Frank Cottle [00:25:17] Yep. I. I agree with that, certainly when we look at our customer base on a global basis and we take what I’ll refer to as our bottom 20 percent. And that’s a very subjective determination based on the type of company, the size of the company, etcetera, versus our top 20 percent, which is, again, based subjectively on the type, the size of the company and the value of the net worth of the company. When we look at those two ends of our spectrum, we find that the bottom end is pretty much maintaining a status quo, long life cycle where we’re seeing churn, and that sort of thing. But we’re not seeing a huge I think aren’t our churn factor for the first six months this year only changed by one half of one percent at the bottom end? What we’re seeing at the Top End, though, is a link thinking of Life-cycle, and I think that’s a natural outcome of larger corporations when they move from. Large, fixed, non agile environment. Just because they moved to a flexible workspace doesn’t mean that they’re still not going to be permanently there.
Frank Cottle [00:26:38] They want the flexibility to move people around and to shuffle things. But generally, it’s a balance sheet issue, too. If they can get that long term lease or debt off of their balance sheet and get it over to a one-year service agreement, that has a huge impact on these companies. And I think that’s a major driver for the lengthening life cycle of a larger corporate and a huge landmark achievement within our industry, the flexible workplace sector because it will add a tremendous amount of stability and stability equals growth. And we all know where it goes from there. So I’m very excited to see those trending issues come about.
Joe Brady [00:27:21] And I lived the balance sheet issue at Walgreens with over 10000 leases. And when the lease accounting changes came to Walgreens became the poster child for changes to the balance sheet. There was some thirty-eight billion dollars worth of liability put on the balance sheet as a function of converting operating leases to capital leases or limiting the capability to borrow that limit your stock value.
Frank Cottle [00:27:53] I mean, all in all, variety.
Joe Brady [00:27:55] You’re exactly right. And then, you know, and then the other. Frank, the bigger point, I think, is, again, back to this notion of the age of acceleration where all of our businesses are changing faster than ever. And if you think about one example that we’re living through now, and I used to do a lot of work with T-Mobile back in the day in their retail rollout, but 5G is emerging.
Joe Brady [00:28:21] And if you think about the time it takes to download a two hour movie, if you use 3G, it takes about two hours if you use 4G. It takes about 48 minutes and five G. You can do it in seven minutes. That’s a 10x increase.
Joe Brady [00:28:43] That is absolutely going to catapult how our worlds exist.
Joe Brady [00:28:49] And, you know, whether it’s autonomous vehicles, whether it’s augmented reality, virtual reality, that the pace of change today is the slowest it’s going to be for the rest of our lives. And and, you know, the fixed corporate. The fixed. A heavy asset, fixed office environment is not agile enough to keep up with that. And so I really think that the role that the flexible office industry has is going to be more important than ever. And I’m happy to be a part of it.
Joe Brady [00:29:22] And it’s been great to meet people like you and and learned from my colleagues at instant how to help invent the future. As they say, leaders make the future. And I think it’s I think we’re helping many companies navigate some tough waters right now.
Frank Cottle [00:29:40] Well, you know, it’s funny, everybody, you’ve heard the phrase new normal and when are we going back to the good old days and all that sort of thing. And I guess I’ll kind of start to wrap this up a little bit by saying that it really is the good old days tomorrow.
Frank Cottle [00:30:04] Boy, you have to look at it. And every day, every single day we go to work is the future. And you really have to live in it, kind of get a little Zen ask. You have to live in the now and understand what’s going on today and be a Jo just a ball every day and make that a comfort level for people, which, you know, historically it hasn’t been. If you say you’re going to have change every day, well, that’s not always comfortable for people. So we have to get a new paradigm of thinking going overall and just in the way we run our lives, that it should be frightening to us.
Frank Cottle [00:30:44] It should be exciting in every aspect of what we do. And certainly the flexible workplace sector is a leading component in that as it relates to the future of work. And I’m very excited to have you as a part of that, are good friends of instant for years and years, decades. Now, I think that we can all accomplish just a tremendous amount together in the future as an industry overall.
Joe Brady [00:31:13] Fantastic. If we don’t say new normal, we say next normal because there will be a next and the next and the next. And I think that’s consistent with your. And I love the Zen example, too, Frank. I mean, it’s true. We have to take deep breaths and know that the only thing that is certain is that change is happening so well.
Frank Cottle [00:31:36] That old surfer hippie in me, the Zen part.
Joe Brady [00:31:39] Very cool.
Frank Cottle [00:31:42] Well, Joe, it’s been really great having you on the future of your podcast. I really appreciate your time. Well, the community is a great contributor and I look forward to working with you long into the future.
Joe Brady [00:31:55] Thank you, Frank. It’s been great being with you today. Take care.
Frank Cottle [00:31:59] You too. Bye bye.