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Nick: Hello, and welcome to another episode of Building Success: A Real Estate Podcast. My name is Nick and I will once again be your guide as we talk to some of the best and brightest in the worlds of real estate tech, operations, and financials from across the globe. This podcast would not be possible without listeners such as yourselves. If you like what you hear and you want to hear more of it, please like, subscribe, follow us wherever you hear this podcast from, whether it be Apple podcast, iTunes, Stitcher, Spotify, YouTube, please give us a like, a share, a follow.

All of that helps us know how well we're doing and bump us up in our ranking so more people can listen to this podcast, and we can deliver more high quality content to you. Speaking of high quality content, my guest today was Antony Slumbers, who has been in the real estate industry in various forms since around 1995. Today, we spoke specifically on the concept of space-as-a-service and what that means. His definition of which there are two real primary drivers of this new we work methodology as it relates to the commercial real estates space, specifically where things are going in that office realm.

We went down a couple of different paths, dug into some of the data. Antony was really good at providing some different metrics, all of which are in the show notes, some of the reports that he mentioned throughout. Really riveting conversation, I hope you all enjoy. Without further ado, here is Antony Slumbers.

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Today, I am joined by Antony Slumbers, a member of the commercial real estate industry I think since 1995 in various forms. You've been in the tech space, the AI space, even software development, I was hoping Antony if you could just give me a quick overview of yourself?

Antony: Very quickly, I have indeed been around since 1995, which is a bit shocking. Actually, my first browser was Netscape 0.9 Beta. I was actually on Netscape before it even got to the alpha release. To cut the long story short, for about 10 years or so, I run essentially a web agency developing internet, extranet, and customer-focused websites for commercial real estate people. I've always worked in the real estate. I'm always pretty much on the commercial side. [unintelligible 00:02:55] stuff all over UK and Europe for a long time.

Then in 2001, I entered into a joint venture with a company called Broadgate Estates, who are the property management arm of British Land who are all of these real estate companies in the UK to develop a suite of property management software, which we then rolled out across actually many of the prime buildings throughout the city of London and across the UK. I ran that for quite a few years. We did things like help their systems, visit the management systems, publish the work license, motivations, all that sort of stuff.

We also did actually what people now call tenant engagement platforms and they are totally excited about it as if it's a new thing. We actually launched ours in 2001 and that involved providing travel information, local dealer information, information about your vicinity, the name of the company vicinity in the sense of the space around us. I did all that for a long long time. Then we also did a lot of retail work. We did a lot of work with shopping centers developing customer focus and, again, tenant focus, focus sense on that.

So I ran all of those for quite a few years and then a couple of years ago, I essentially stopped doing that and I got interested, if you like, the second time around in what's the next big S-curve. So having started early, by the time we got to 2015, I thought, "Well, that's pretty much that S-curve done. What is the next new thing?" I started writing a lot about that. Pretty much what I do now is I do a lot of consultation at board level helping developers, project managers, investors, look at their portfolios and broadly think about what the impact of technology on their portfolios will be.

Where will technology make a difference, where would it make things more valuable, where will it make things less valuable, where will it make things obsolete, what you should buy, what you should [unintelligible 00:05:16] and what's coming down the track. It's a mix of quite a lot of real estate domain expertise but I've also done a lot of tech side. I'm in one of this quite lucky positions where I can explain technology to real estate people and real estate to technology people. That's what I do.

Nick: I'm in one of those cool spaces where I get to hear from people talking about real estate tech and the intersection of technology and real estate. One of the things I wanted to talk about today and really it's based off an article I read of yours, this concept of space-as-a-service as one of these new things coming along.

I've also heard the term workspace-as-a-service and maybe you can differentiate the two. Obviously, the real estate industry loves the use of these buzzwords. I really liked an article you wrote in Propmodo, which for those of you listening, I'll throw in the show notes. Can you just to start things off at a high level, can you introduce what this new SaaS is, space-as-a-service, what does this imply?

Antony: Well, SaaS comes out really from my technology background. I started talking about space-as-a-service in, actually 2014, because really a couple of years before that in the tech world, it very much started to become software as a service. People started to move to the cloud, started to just use what they wanted, when they wanted it, buying what they needed, then no commitment, no long-term leases, no long-term licenses, just use what you need when you want it, but also give everyone the access to the best tools available across the board.

I started thinking really all of this is going to start changing what office space means. I started thinking about this idea of space-as-a-service, which to me actually has two distinct meanings. Space-as-a-service in one way is about procuring space on a sort of time as you want it type basis. So I want this room for an hour, or I want this space for a week, a month or a couple of months. In the same way as you hire a movie from Netflix or you stream something from Spotify. It's the procurement side. It's the as a service buy it when you need it.

More importantly, as things develop, is the idea of space-as-a-service in the sense of providing people with the spaces they need and the services they need to fulfill the jobs [inaudible 00:08:03] at that particular time. If you start thinking about workplace in terms of what is it each individual is trying to do in that space, and then think, "Well, in that case, if they're trying to do X, what Y type of space do I need to provide them with, and what A, B, C of services?"

The idea of space-as-a-service in the sense of providing you with the space and the services you need to get to be most efficient and effective in doing what you want to do, takes the whole concept into a much wider area, which is why I've subtitled that article The Trillion Dollar Hashtag because there's the on-demand procurement side of space-as-a-service, the flex working, the coworking, which is growing rapidly, but it would only ever be a smallish percentage of the market.

If you think of space-as-a-service in the sense of really good workplace that enables you to be productive, you're really talking about the whole market. So if you start thinking about the whole office market being affected by this hashtag space-as-a-service, then you start thinking, "Well, yes, this is a trillion-dollar hashtag."

Nick: Obviously, real estate is a very old industry and office space is also a very old industry, why is this occurring, why is this shift happening now?

Antony: I think is because fundamentally, technology is genuinely changing everything. A lot of people talk about the way we work changing, but it's not really the way we work that's changing that matters, it's the work we do. If you start looking at what technology is enabling now, McKinsey put out this report a couple of years ago and they have that quite well-known line of 49% of all the tasks that people are paid to do across the world have the capability of being automated by timely-demonstrated technology, not technology of the future, timely-demonstrated technology.

If you think 49% of everything of the tasks, not the jobs, you must always differentiate between this is not saying 49% of the jobs can be automated, it's 49% of the component of within jobs. Some jobs will be 90% can be automated, and some jobs will be 5%, but across the whole body of work, roughly half could be automated by technology we have now. If you start thinking of it in terms of the same way you have a smartphone now, and you know your smartphone is unbelievably more powerful than it was 10 years ago, and it is like a magical thing now, I just look at my phone and it lets me in.

Well, think in 10 years time it's 'going to be 100 and something times more powerful than it is today. In 20 years time, it's going to be 1,000 times as powerful and in 30 years time it's going to be a million times more powerful. Let's just say it's 100 times more powerful, or even 50 times more powerful, if the technology as it stands today can do half of the tasks people are paid to do, then where is that going to be in five years, in 10 years, in 15 years?

You have this situation where technology is really taking over any task that is structured, repeatable or predictable. If you can break any task that you do down to something that is structured, repeatable and predictable, it will be automated. Things that can be automated always are automated. We may not like it but it's an inevitable progression. If it can be automated at some stage, it will be.

If you think of anything that fits into that category and then you're going, "Well, in that case, what do we humans do?" We humans do all the things that aren't structured, aren't repeatable and aren't predictable, so we do what I call new work. I like to think of all these structured, repeatable, predictable work as old work. This is like washing your own clothes or doing your own dishes before there was a washing machine or a dishwasher. Obviously, as soon as there was a washing machine or a dishwasher, you let the machines do it.

Anyone logical will let the machines do the things that machines are good at. Now, where we are very lucky is machines are good at what they are good at and actually humans are good at what they are good at, unfortunately, they are not the same things. Humans are good at design, intuition, social intelligence, [inaudible 00:13:01], empathy, those sorts of things. Human capability is human skills and that's the work we're going to be doing in the future. There's a still from a Jack Lemmon film in 1960 called The Apartment and there's a photograph of his office in this film and it looks just like a spreadsheet.

There's all these desks all lined up in a row and each of them is like a cell in a spreadsheet. You think of the old [unintelligible 00:13:34] office where all the desks were lined up, it's essentially a cell in the spreadsheet where everyone is doing something structured, repeatable or predictable. So you need that sort of format for that sort of work.

When we're going to be doing human work, we're actually going to need completely different types of spaces, because we've got to work in spaces that catalyze our human skills, that enable us to be the best humans we can be. We know that humans perform best doing human things when they are in environments that are appropriate for the task in hand, which is why offices are becoming [unintelligible 00:14:16] much softer, because a lot of the work we are doing in terms of social intelligence and judgement and reasoning and designing and thinking is collaborative work.

It's not a very collaborative thing to 4 people or 8 people or 16 people to be sitting at 4, 8 or 16 desks talking. It's much more conducive in a comfortable environment. As we do more and more of this human work, our office spaces are going to need to become more and more human. So the form factor of the office changes quite dramatically. What I think you are finding that's interesting at the moment, there's all the earliest people who've been doing this WeWorks of the world in the office group and industrious and all these sorts of places.

If you go back a few years, only a few percent of people might have ever been into one of those spaces, so they wouldn't have actually thought about an office could be like that, but as this is becoming more complex and more and more people are experiencing these different types of offices, they're going back to base and saying, "Why is my office like this? Why do I have to work in this awful environment?" Because there is a much better way.

I think you'll find the more companies are human-centered, so even a knowledge worker is essentially a human-centered worker. In many ways, the higher-valued jobs are the more human jobs and that's pushing this whole market, so you're getting this very strong push towards these new types of spaces largely from the upper [unintelligible 00:16:08], if you like, of business. That's really why it's all changing because technology is fundamentally changing the work we do.

Nick: Which is really interesting. When you were talking through that and you make the Jack Lemmon reference, in my head, I had the Kurt Vonnegut book, Player Piano, and it's the same type of thing that where everything got automated and then what happened was this deviation where it became about the engineers who helped to create and optimize the machines that were doing the automation. Obviously, that was in a manufacturing context and not a real estate one, but the same type of mentality of the movement automation and how that can change, now granted Kurt Vonnegut's was much more dystopian and I think you're seeing this in a much more positive way.

Antony: I think it is extremely positive because if you approach automation and artificial intelligence and technology with a cost-cutter's hat on, it's a dead end. You're going to hit a wall quite quickly. If you think about it, if you think of the child's handy X-curve of business where you start at the bottom left with not many customers and that's the real innovative area, you've got no customers and you've got no competition, but you can set yourself apart, and then it goes to a life cycle of becoming customized and then productized and then eventually commoditized.

That area top right is fantastic for the machines. If you're in Jack [unintelligible 00:17:56] and everything it's got to be 99.999% accurate, that's a world that's great for the machines, but it's a dead end. It's just perfecting one thing, there is no improvement on anything and that's where you will end up.

If you think of the machines as just a way to reduce costs, you will do quite well for a while and then you'll pull off a cliff, because the opposite mentality where people are pulling together human and machine to enable each side to leverage the skills of the other to create something new and better, [inaudible 00:18:43] out of the water. The only way to make a success [inaudible 00:18:49] is that it's a humanized. If we as societies use technology for purely technologies purposes and [inaudible 00:19:01] for ourselves.

I don't think that's what's going to happen because I think there's enough people and you see it within the tech industry, not obviously across the whole of the tech industry because there's certainly pockets of this stipend narrow thinking there, but the really smartest tech people know that by putting all these things together, by putting the human and the machine together, where the human can use the machine better and the machine can augment the humans.

If you think of technologies augmenting humans, that's the way we're going to create great products and build-- we're not going to build a utopia, but we should still be able to [unintelligible 00:19:49] a dystopia. It's like so many things. It's a mindset in the first place. If you have a growth mindset and a mindset where you want to make-- they all stupid technically share the world a better place, but if you genuinely want things to just work better, even if it's selfishly for your own life, I just like my own life to work better, that can be easier to- I don't know, unlock my front door or program the TV remote control or whatever, you just want everything to be better. If you approach it with that sort of mindset, then I think there's incredibly positive outcomes here.

Nick: Let's talk about one group in particular. Actually, a lot of them are listeners of this podcast and that's the property manager, the property owner. I know in some of what we've been talking about this rise in tech is been very beneficial for the companies involved with it but I think for some that are managing and owning properties, this can be a more frightful time because there's a bit of change ahead. How does this- the same shift that we've been discussing, how does this affect the property manager?

Antony: Well, the property manager is almost, in my mind, the poster child in industry for what I'm talking about here. If you take it at the moment, property management is obviously a very large business because there's an awful lot of property to manage, but it's a low margin business,it's a difficult business, it's a largely-commoditized business with very little scope for differentiating yourself. So it's a very difficult market to be in.

If I own a big office building, I can get CBRE to come and manage it. If I fall out with them, I'll just put JLL in. If I fall out with them, I'll put Cushman in and effectively I will get pretty much the same thing. Now obviously, they will all say, well, "Our services is different," but fundamentally it's not if you think of it in pure property management terms. In terms of the old work office, they have no differentiation.

What I'm talking about in terms of this new world of new work office, so the offices that are places to catalyze humans skills and where humans go to do the things that humans are really good at, if you start thinking it's in that case, then if you flip to the other side and start thinking about, what does your customer actually want? Now in the real estate industry, we always say, "Well, that company needs an office. It's that size so it needs an office." I don't think there's any company that's ever genuinely thought, "I want an office."

No company wants an office, what they want is a productive workforce. Now, they used to have an office in order to get a productive workforce, not least of all because they could line them all up in a spreadsheet and get them to do lots of structure repeatable, predictable work. In the new world, making a productive office is going to become increasingly difficult but increasingly important.

So if you're differentiating your business through the genuine skills and capabilities and services that your people can create and deliver to your customers, in order to make them as efficient and effective as possible, you have got to put them in good workplace. That's one of the very big differences at the moment, the value and the importance of a good workplace is rising dramatically.

Now, the trouble is, in this new work type workplace, agile workplaces, flexible workplaces, it's complicated. It is genuinely complicated to build a really efficient, effective workplace that fosters productivity because you might have someone who has 16 different types of tasks that would suit 16 different types of [unintelligible 00:24:17] environment.

You might need to be providing a quiet desk, an event space, a small meeting room, a big meeting room, somewhere to do a podcast, someone to have a big meeting, a small meeting, somewhere to have a quiet meeting, somewhere to make a [unintelligible 00:24:33], all these different types of localized environments, all what is needed to create a great workplace. The point is, that is really hard to do. With my property management clients, what I am, if you like, evangelizing is that the real estate industry needs a new type of service. This is, if you like, property management plus plus plus.

If you think of it, the way I see property management of the future, is a company that doesn't come to you and say, "Well, I will make sure your office runs okay and the lights work and the air conditioning works and it's nice and clean and tidy and I'll fill the coffee machine up and that sort of thing." Doesn't say that.

Just says, "Well, that's obvious. That's the bar. That's table stakes. What I am going to do is I am going to help you create a productive workforce.

I'm going to do that by using my real estate skills, everything we know now and on top of that, I'm going to bring in IT skills, IoT skills, data skills, data analytics skills, workplace skills, hospitality skills," all of these different components of what it takes to build a great workplace.

So you have to combine the physical skills of the real estate assets within how that space is being used, and then an understanding of who's using it, why are they using it, why are they not using it, and then in real-time continually measure, monitor, and optimize that space to make it the best space-as-a-service for the customer. Now, in that world, the property manager in effect can go for- you may never like it when I say this, but I have this line of saying how to go from zero to hero.

Zero is pretty much the market. I look at Property Management at the moment, however good they are, there's loads of really great property managers, but they don't get many thanks for when things are working and they're the first people to be taped when someone needs to save some money or something goes wrong. So it's a very difficult market. If you take this line I'm talking about, this is much more a hero position.

This is much, much higher up the value chain, because you as the property manager or whatever new name you need to come up with to describe this new set type of service, moves way up the value chain and the importance to that the occupier and actually, interestingly, converse possibly happens to the landlord, you see. So the moment you have a situation where the landlords are king or queen of [unintelligible 00:27:36] because they are in the building, and property managers are the other end of it, to this situation where it's the most important thing about your office is does it enable your occupied to have a productive workforce?

Whoever can create and curate the space to enable that to the best ability of that particular building, actually becomes the most important person, the most important entity in the value chain. The landlord is actually is just providing the empty shell, is not really adding any value. The value is being added by this new digital layer, this sort of combination real estate, digital workplace data, IoT analytics type of entity in the middle, so the operator-- If you look at WeWork with Powered By We, effectively this is what Powered By We is doing.

They go into a customer and say, "Look, we can design, manage, optimize, and elevate your workplace better than you can do it, and you will pay us more money to do that than you would for anyone else just to manage it." The customer is going, "Well, yes. This is more expensive but on the basis of JLL use this thing of 330, 300," so your utilities are $3, your rent is $30, your people are $300. The most important thing is if you can make your employees as productive as they are capable of being, that's worth so much more than utilities or rent.

So the person who could enable that, as I say, move way up the value chain, and it's a absolutely huge opportunity for the property man-- Well, it's actually really interesting this because you think, "Who's can do this?" So the moment you've got a situation where you've got [inaudible 00:29:47] companies, possibly could morph into this new type of entity, your property management companies that could do it, you have landlords who could do it themselves if they were so inclined or you've got the third party operators, the WeWorks and the industrious and whatever, but either way, the point is who ends up as the operator of that space, ends up being probably the most valuable person in the pie.

Nick: As you were saying all that, the piece that it keeps coming back into my head, and this is maybe just playing devil's advocate for a second, especially with these WeWork models, they're much shorter term leases. The biggest thing for a landlord, for an owner, is to make sure you have that high occupancy and in many cases low turnover to maintain that high occupancy. Is there a way to reconcile that? The fact that you might be getting shorter term leases, there might be vacancies. Is it just the profitability of this new model that helps to reconcile that or what are your thoughts there?

Antony: I think it's a case of people carry on buying things that they either really like or that are good for them. The situation at the moment is, if you look at the Leesman Index, the Leesman index has now done more than 500,000 interviews of employees in various office spaces, and they ask them a whole range of questions, one of which is, "Does your workplace enable you to be productive?" and after 500,000 interviews, it's stalled at just over 50% of people say, "Yes, my workplace enables me to be productive."

So you've got nearly half the people, if Leesman is a good guide, in offices who don't believe their workplace enables them to be productive. Now that to me is a huge hashtag fail. The second hashtag fail in the office market is that frankly, your occupied doesn't use your space very much. If you look at the occupancy of a desk, it's again, circa 50%. Your space is only being used about half the time and half the people don't think is really very good for them anyway, but they've signed the lease, so you've got them have happy days, but that's not a sustainable position.

If people start having the option of moving, because more and more of the total supply becomes flexible, they will move and where are they going to go? They're going to go to places that they use more intensively and that are better for their own internal productivity. I would say the more secure office building is one where it's occupied by people on probably very short leases but who have really high satisfaction.

If you could get satisfaction levels to 70% of the people in your building, you think that building helps them be productive and they use it 70% of the time, the fact that they're on a short lease, I don't think really matters because they're not going to go. If you provide a good enough service, people will stay, and more than that, they will pay you more for it.

I think there's a big paradox going on at the moment, and that is, if you look at certainly the larger companies, if you take London, for instance, whenever a larger company moves in London over the last few years, they reduce the space needs by 20 to 40%. If they used to take a 100,000 square feet, they will now take 60,000, 70,000 square feet and they will take it on a shorter lease than they would have done some time ago. So that looked really bad.

On the other hand, the game here, the win win here, is to get someone who would have taken a 100,000 square feet to take 50,000 square feet, but pay you the equivalent of 70,000 square feet because you're going to provide a whole range of additional services for them that is going to essentially make them happy and he's going to provide them with what they need to do the jobs that they have to get done, and they will still save money by paying more. Because as soon as you can unbundle, and this is really the great success of WeWork, they have unbundled office space form per square foot per per person.

That's not what you pay for. You're not paying for the square footage. You essentially you are paying for the service. My feeling about who's secure and who's not secure come the next downturn, is I would be really nervous if I had a lot of tenants in old rather dull, boring, conventional office space with a few years left on their lease, because I think, when that comes up, they will go and you won't be able to let it again, because I don't think going forward 5 years or 10 years, in 5 years time, people won't want that sort of space.

The secure places are actually going to be paradoxically the ones that, on the face of it, have the least security, but they're going to make up for that lack of security by simply providing a much better service to their customer. This is almost a central point of everything to do with space-as-a-service. That traditional real estate has always been about selling a product.

You sell that product and then you're gone. Even if it's a lease, you might say, "All I'm interested in keeping my tenant happy," but once I sign that 10-year lease, the only thing you're really interested in is that they pay their rent every three months. As it moves to a service industry, you have got to pay attention. You have got to understand your customer first off, and then you've got to pay attention to your customer each and every day.

Now, all of that is obviously an added cost, an added irritation, an irritation in the way it's more work, there's what you need a whole new organization to do it, but in the service world, you have the opportunity to differentiate yourself by providing the user experience that is better than your competitor. In product land, the only real way you could differentiate yourself would be that my prime office is in a slightly better location than your prime office but essentially all looks the same.

In the service world, you understand what your customer is, and then you design the user experience of your space around what your customer wants. My contention is regardless of the length of tenure, if you provide a user experience that provides your customer with what they want, unless you're unlucky enough and they go bust, they ain't going anywhere. You've got them, they will keep paying because they need to pay because that's what enables them to have a productive workforce.

Nick: This is really interesting in my head because you've got so many different factors at play changing the overall valuation of a property. You're referencing the fact that you're changing the layout. People are moving into spaces and they need less space, so you're able to, in many instances, get more tenants in the same allotted space you're doing in some cases, vital, maintenance, but in others just design changes and adding new services, all of that has to be changing the valuation for some of these properties as well, right?

Antony: Absolutely. Valuation is a really, really interesting area at the moment and obviously it's critically important because valuation, you're in the money side of the equation and without the money side of the equation being right, nothing gets done. So it's crucially important to understand the changes coming to valuation. I think that the notion that valuation is essentially based on rent, those days are largely gone now. I'm not saying that people will stop taking decent length leases, they will but they are going is definitely take 50,000 square pay instead of 100,000 square feet.

They can take on a longer lease, their base core need and then their flex, the rest of it, but in addition paying rent, there are so many opportunities in a space-as-a-service world to provide additional services in also in all sorts of way. It can be as simple as paying for your printing, or paying for a meeting, or paying for an event space, but it could be paying for insurance, it could be paying for discounts on software, it can be training, it can be anything, it doesn't really matter. If you think of the total needs of your customer during the day within their space, how much of that can you or your ecosystem of partners provide? The components of the total income of a building in terms of rent, I think is going to continually reduce and you're going to get more and more components of services.

Now, obviously, the huge problem in commerce, whether it turns out to be a problem or not I don't really know, it's not really my area, is effectively you're changing the office market from one with bond type characteristics to equity standard business. This building is being valued not as a bond where a customer in there, we know what the rent's going to be and it's going to go up for the next 15 years, but it's going to be valued based on the income you can generate out of that.

That obviously changes things considerably, but, again, the flip side of this is it offers so much opportunity and increases the importance of building user experiences and building brands and being known for providing a certain type of service. I have the space that I use of that UX equals brands and brand equals value. The user experience of your space will come to-- your brand will come to reflect the user experience of your space. Think of this in terms of luxury cars, an Audi, Mercedes Benz, BMW, the most important customer for any of them is a person buying their first luxury car.

Because if I as Mercedes can get you to buy an entry level Mercedes, chances are I'm going to keep you for the next few cars. Same with BMW, same with Audi. People do not tend-- They tend to buy into the brand. I'm a Mercedes person, or a BMW person, or an Audi person. Now I'm thinking of this in terms of what is mine? What am I buying into as a customer in real estate?

Now, it could be-- just take it as an example, you could be a WeWork type company, or you might be an industrial side. I'm sure if you talk to industrials, they'll say they're offering a completely different user experience than WeWork are, and if you take someone like the Office Group, are very big over here, owned by Blackstone, they will also say well, they have a completely different user experience as well. One of them is Hilton, one is Four Season, one's Premiere and one's Marriott, one's whatever. They're different brands for different customers.

The importance of building a reputation for being purveyors of a certain type of user experience will be reflected in your brand. I think that brand value is potentially going to be really big. If you look at WeWork, they released their numbers, didn't they, yesterday for flotation and it's completed $47 billion now. It gets even more nutty, but what percentage of that is the brand? What is the WeWork brand worth now? I would hazard a guess that it's worth a hell of a lot because for a particular type of customer they're your go-to people.

Getting back to the valuation side, clearly, all of this starts making valuation a lot more complex and certainly very different to now. My argument would be that the net effect is going to be very good and very bad. I think the potential to carry on valuation, the valuation of your portfolio, by not doing anything pretty much as it is now is going to be very low. I think you are either going to be losing a lot of money in your valuations, or you're going to be gaining a lot.

That's going to be down to how well, ultimately, you can transform your space into spaces of surface, as I say, in that widest meaning of providing a space that fulfills the requirements of your particular customer. If you can nail that, I think you have the potential to earn a considerably more money. If you don't nail that, or you do it badly, or you don't do it at all, I really think you're going to end up with a lot of commoditized space, no differentiation and attractive to people who aren't really that bothered about their employees.

Nick: Let's talk about WeWork. As you just mentioned, this is an interesting time for not only them, but for us to have this conversation with their recent announcement of their IPO. How do you think that's going to affect them and basically the industry as a whole now that this front runner has come out and going public?

Antony: I find the whole WeWork thing absolutely fascinating. In a way, I'm a complete fanboy the old way you used to have Apple fanboys that would buy anything, but even with Apple I'm a much less of a total fanboy now. Half of me is a complete fanboy in that I genuinely do think they are the most innovative thing to happen in real estate, certainly, as long as I can remember. I am hugely impressed by their ambition, by their attention to innovation and change, and their understanding and embracing of technology, and their desire to think through the whole experience of owning and operating a space.

I love the idea that when they partly select the spaces that they sign up for using AI and all manner of non-real estate related criteria data points. The first thing they do is they go in and they radar, they scan the whole place, and then they do a lot of their own design and their own construction, and they do the monitoring, and they do da dee da dee, da dee, da dee, da. I think that is absolutely fantastic and will be standard operating procedure, I think, for any office building.

As I said, it's not necessarily that the landlords can do it, but I certainly talk to my landlord clients along the lines of, "Well, if you're not going to do it yourself, you need to be partnering with someone who can do this in a very tight relationship." That said, there's clearly such a madness about the whole WeWork thing. You start looking $40 to $47 billion and you think you turn over 1.8 billion in the year, but you lose 1.9.

There's a certain craziness about it which sort of used to a bit with my tech at home because Uber is just going to play to $80 billion and has never made a cent. They've lost tens of billions. In that sort of world and what's Facebook worth is unbelievable. The difference, of course, is in purely software companies you're very asset light, whereas in real estate companies it's much harder to be asset light.

Whilst I'm quite scornful of all that WeWork-- WeWork are just Regus with a beer pong. I'm very [crosstalk] that. You hear a lot of that over here, "WeWork, they're just Regus with a beer pong." They're clearly not, they are offering something very, very different. In many ways, I think with WeWork it sort of actually doesn't matter what happens to them as such.
It might turn out-- I could see how they could make this valuation make sense.

I could see how they could diversify in the same way as Amazon diversified. Actually Adam Neumann said that once, didn't he? He said, "Well, if you think of us as just an office company, that would be like going back to year 2000 and saying that Amazon is just a bookseller." Once you start thinking in terms of who owns this customer relationship, how many touch points do you have with your customers, and what opportunity is there for you to fulfill the wants, needs, and desires of your customers, you start thinking, "Well, wow, WeWork, they could go off into all manner of different directions." Which is what they're doing with WeWork and WeLive and the gyms and all the sort of stuff.

Genuinely they could, they are building a network of customers who they know a great deal about. They are building an ecosystem of partners that will enable them to sell more and more things to their network of customers. That, to me, is a really important lesson for real estate because real estate has this strange thing that-- if you compare real estate to the likes of Unilever, Procter & Gamble, or Colgate, and you think of the billions of dollars they spend each year trying to get close to their customer, and the money they spend to understand their customer, you can compare that with the real estate industry that has all its customers in its building every day and knows nothing about them, you start thinking there is a huge wasted opportunity here.

The more you know about your customer, the more opportunity you have to service them in all manner of ways. Nobody has the access to their customers that real estate does, because our customers are in our buildings every single day or every other day. We have huge touch points with our customers. I can quite see how they could pull it off is definitely in the high risk high reward side of the equation. Even if they don't, I think they have completely transformed the industry full stop.

Without WeWork-- same as Tesla and electric vehicles. If you think electric vehicles now, everyone makes them, GM make them, Kaiser make them, Audi make them, Mercedes make them, they're all making electric vehicles. How many of them would be making electric vehicles if there wasn't a lunatic called Elon Musk running a company called Tesla? The answer is probably none of them. Tesla has completely catalyzed the electric vehicle market and turned it into something different.

I think WeWork have animated and catalyzed the real estate industry, and by sheer force of spending, has changed what it means to be in real estate. Regardless of how WeWork end up, the industry is fundamentally changed. I think WeWork are-- funny enough, I thought I was the first person to start talking about space as a service in 2014. I actually came across an early slide deck from WeWork in 2014. They have the word spaces of services in it. They're the only other ones I've seen so early using the same phrase.

Nick: Which is what you get from every one of these innovators and every one of these different industries you just mentioned, right? They're on top of it well before-- the Bezos, Amazon, there was an interview I saw on LinkedIn that he did well before they were doing anything beyond books. He's like, "We're not a bookseller, we're a way of getting product to customers in a new and innovative way."

Antony: That is it. That is exactly the point. The interesting, the real key I think is-- funny enough, I just read the-- what's it called? The Everything Store, this is a biography of Bezos, which is fantastic. The story behind AWS-- AWS is their money tree at the moment. Some people thought AWS was just monetizing the system that they used, and that went around for a long time. Amazon were using all this infrastructure and they just thought, "We'll sell it on something else," it's not true at all. AWS was deliberately set up because they needed something that was going to make some serious money. Books were never going to-- it turned out that they couldn't retail, they never could make very much money about.

If you read the book, it tells a story about how Bezos was going around saying, "We need something new, we need something [unintelligible 00:54:53] our network, our capabilities, our skill tools, but is much high margin." That's how AWS came to be and then it turned into a complete-- what's the opposite of money pit? Money mounting, I suppose. It's an interesting thought with WeWork where they're not going to justify $47 billion by lease arbitrage. What is it that they are going to justify it by? I don't know what the answer is, but I do know, because the dynamics are the same, networks and ecosystems are really important.

In the software industry [inaudible 00:55:40] and they want an ecosystem of suppliers providing things that they can sell for their customers. If you think of the [inaudible 00:55:48] store, the App Store is the front end to their ecosystem of providers who sell things to Apple's iPhone customers, or Facebook, of courses, is the-- I think there's going to be a number of big brands. I don't think WeWork is going to be the only one. In the same way, there's not only one great hotel brand.

They might end up like-- is Marriott the parent company for the different hotel brands, I'm not sure of that, I can't remember, but if you think of the hotel groups, they have all their sub-brands. I can see that. I did a presentation a few years ago, which I put to a large reach over here. It was about how you should be adjusting your portfolio. I said to them, in a Utopian world, [unintelligible 00:56:47] two people out of university and put them in one of your spaces. Then over 30 years, as they built their business, got bigger and bigger, you would have a product for them all the way through until every now and again one of them would knock it out of the park and you build an HQ for them.

You would essentially be thinking, "What is the lifetime value of this customer? What is the value if I can keep this customer for 30 years?" Then you start changing the idea of valuations, don't you? You start thinking lifetime costs. To go back to the cars Audi, Mercedes, BMW spend a vast amount of money trying to get that 20-year-old to buy their first luxury car, because the lifetime value of that customer will be huge.

Now if I can provide a user experience that suits someone the whole way through their career, I potentially have got a lot of loyalty. I don't know, it might not be possible. Airlines do it, some pull it off better than others, hotels do it for people who travel around, they always go to the same hotel because that hotel knows them et cetra. Those are very valuable customers. Casinos do it, don't they? They understand their wills and their needs and wants and desires and they pander the hell to them and they keep them. I don't know, it's a big unknown world what happens when we'll take some products to service.

Nick: Well, Antony, that is a great segue here into our close. I want to thank you so much for your time today. What's new and exciting in your world at the moment? I know, MIPIM's coming up and you've been preparing, writing some articles leading up to that conference. What else are you up to?

Antony: I'm working my way, so I'm writing five articles ahead of MIPIM PropTech in Paris in July. I'm doing a lot of speaking at the moment. I was in Helsinki yesterday, I'm coming to New York, [unintelligible 00:59:10] and then going going to Bangalore soon and Lisbon and Madrid and various places like that. As I said, I do a lot of consultancy work with property managers, landlords and investors. My time is pretty much half and half now between speaking at events, public events and private events, and doing quite in-depth down in the weeds strategic analytics for various players looking at how their industry and their business is going.

Everything about me is on antonyslumbers.com, all my blog posts are on there, they are also on LinkedIn and if you are a member of the Twitterati, you will find me at @antonyslumbers on Twitter where I do tweet quite a lot.

Nick: Well, thank you again so much for your time. It's really a pleasure speaking with you today. It was a really great conversation, I really enjoyed it.
Antony: It was a pleasure. Thank you for asking me.

Nick: Again, if you'd like any more information on Antony, his website, www.antonyslumbers.com that's A-N-T-O-N-Y Slumbers.com I'll put all the information we talked about today in the show notes, some of the articles that were raised as well as some information and some of the articles I found really interesting from Antony, including his blog, I'll be sure to throw in there as well. Again, if you want any more information on building success, check out our newly rebranded website at www.buildingsuccess.io. Until next time, we will see you later.

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