WEBVTT - Better Real Estate Deals Outside Gateway Cities

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Masser and

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<v Speaker 1>Jason Kelly on Bloomberg Radio. So that's going on certainly

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<v Speaker 1>to say the least virus market itself. Yet companies, investors

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<v Speaker 1>still making decisions, and that includes in the commercial real

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<v Speaker 1>estate market. Gil Barock is US president and CEO of

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<v Speaker 1>Colliers International, usually based in Los Angeles, but he's here

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<v Speaker 1>in our Bloomberg Interactor Broker studio on this Thursday. I'm

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<v Speaker 1>nice to have you here with us. Thank you. So

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<v Speaker 1>what I don't know how do you and your business

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<v Speaker 1>kind of pulled together as you walked in, Like wow,

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<v Speaker 1>what a week between the market sell off concerns about

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<v Speaker 1>the virus. I think we're all now do we have

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<v Speaker 1>to reassess with the market and economic outlooker for the

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<v Speaker 1>rest of the year. So how do you kind of

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<v Speaker 1>take account of it? So I look at something like

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<v Speaker 1>coronavirus as a macro event, and always in commercial estate

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<v Speaker 1>of relative to commercial real estate services, when you look

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<v Speaker 1>at the macro event, whatever it is, whatever it's been historically,

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<v Speaker 1>you generally will get a short term sees up and

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<v Speaker 1>then things normalize. Now I don't know what's going to

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<v Speaker 1>happen with coronavirus, not none of us do. We don't

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<v Speaker 1>know how far it's going to spread. That's the nervous factor.

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<v Speaker 1>But but things do tend to become clearer with time.

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<v Speaker 1>Some of what the CDC has said this week is

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<v Speaker 1>very new news to most of us, so we don't

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<v Speaker 1>quite know how to react. But the one thing I

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<v Speaker 1>do know is when you have a macro event like this,

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<v Speaker 1>things do calm and generally you'll see the market sees up.

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<v Speaker 1>You may see some deals be put on hold, and

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<v Speaker 1>then it as long as things pan out in a

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<v Speaker 1>relatively organized and orderly fashion. Um things, everything else in

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<v Speaker 1>real estate normalizes as well. Deals get that nothing change.

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<v Speaker 1>Yet nothing's changed it. It's very early days, right, especially

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<v Speaker 1>have any deal has been kind of stopped because are

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<v Speaker 1>delayed because of all this? Not that I'm aware of.

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<v Speaker 1>Been around the world because you guys are huge, not

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<v Speaker 1>that I'm aware of. But yes, overseas, I have heard

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<v Speaker 1>instances here and there of of things being deferred. Okay, Um,

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<v Speaker 1>but that is not close for consternation because that's a

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<v Speaker 1>very normal reaction. Why the why is the stock market

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<v Speaker 1>down that? Because we don't know. Right, let's talk about

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<v Speaker 1>your world, the US especially, and sort of pockets of

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<v Speaker 1>strength and weakness. We talk a lot on this show,

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<v Speaker 1>and we think about demographic trends, We think about financial

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<v Speaker 1>trends in migration, you know, sort of people moving around,

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<v Speaker 1>companies moving around. You're in Los Angeles, normally we're here

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<v Speaker 1>in New York. These are places that, to some extent

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<v Speaker 1>are becoming less popular in some cases. We hear a

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<v Speaker 1>lot about Nashville, We hear a lot about Austin, Texas

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<v Speaker 1>and other places. What sort of trends do you see

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<v Speaker 1>out there? Yeah, you know, when things get expensive and

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<v Speaker 1>gateway markets, the natural progression and people are confident, the

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<v Speaker 1>natural progression is to go where stock office stock or

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<v Speaker 1>or whatever industrial retail, whatever it might be. Whatever you're

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<v Speaker 1>buying back office, you tend to go where it's cheaper, right,

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<v Speaker 1>where it's more efficient. Um, And we've had some really

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<v Speaker 1>good markets for a good long while now. So gateway

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<v Speaker 1>cities are are more expensive, and that's in part why

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<v Speaker 1>you see expansion. The deal is to be had somewhere

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<v Speaker 1>other than New York or l A. Of course, New

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<v Speaker 1>York l A cities like that are always going to

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<v Speaker 1>have a level of activity just by the size of

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<v Speaker 1>the population and the demand it creates. How's the build

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<v Speaker 1>out and that, you know, in terms of new properties

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<v Speaker 1>coming out for the for the commercial real estate market,

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<v Speaker 1>what kind of activity are we seeing. There is activity

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<v Speaker 1>depending on where you are, but there's no over building.

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<v Speaker 1>We learned that generally speaking, we learned that lesson a

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<v Speaker 1>long time ago. Of course, when there's demand, uh, you

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<v Speaker 1>get building. Building takes a little while, and that's when

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<v Speaker 1>you sometimes get into an oversupply situation because you don't

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<v Speaker 1>have perfect vision. But generally speaking, there's not an over

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<v Speaker 1>building situation. One of the elements of the commercial real

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<v Speaker 1>estate market, the real estate market at large that we've

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<v Speaker 1>talked a lot about from the private equity perspective, from

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<v Speaker 1>the public equity perspective is sort of the industrial side

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<v Speaker 1>and the power of Amazon and other very logistics heavy

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<v Speaker 1>type companies that they've had. We've seen a lot of

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<v Speaker 1>investment go in there. What's your take on that, Yes,

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<v Speaker 1>that is true. Um, what I would say is that's

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<v Speaker 1>where we start to talk about things like the blending

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<v Speaker 1>of industrial real estate and retail. So so when you

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<v Speaker 1>look at an Amazon a warehouse that's strictly for Amazon

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<v Speaker 1>distribution is that retail or is an industrial I can

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<v Speaker 1>tell you it used to be industrial, right, and traditionally

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<v Speaker 1>you would call it a big they're bigger than than most.

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<v Speaker 1>But it's a big industrial warehouse. But it's essential for

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<v Speaker 1>that last mile of delivery, which is ultimately a retail

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<v Speaker 1>concept selling to an ultimate consumer. Um that that that

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<v Speaker 1>warehouse needs to be close to usually in an in

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<v Speaker 1>an industrial area, traditionally industrial area, but really for the

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<v Speaker 1>purpose of not manufacturing but retail. So there's a blending

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<v Speaker 1>there for sure. And Amazon is the largest retailer right

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<v Speaker 1>at this point, and it's convenient and it's here to stay.

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<v Speaker 1>But that doesn't mean I should make this comment. It

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<v Speaker 1>doesn't mean the demise of traditional brick and more no retail, right,

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<v Speaker 1>but what are the not But but so, what are

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<v Speaker 1>the implications of that for the mix that maybe a

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<v Speaker 1>real estate investor has. Are you seeing people sort of

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<v Speaker 1>leaning more heavily on what, as you say, was more

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<v Speaker 1>traditionally industrial and and maybe better known now is like

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<v Speaker 1>logistics type of opportunities. You have a lot of interest

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<v Speaker 1>in industrial real estate for sure, probably more than your

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<v Speaker 1>data storty because demand is right, So it's sort of a.

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<v Speaker 1>It's a it's it's it's it's the cycle cycle of life.

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<v Speaker 1>If you have a cycle of commercial real estate life.

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<v Speaker 1>Um but Q Lion King here we go, very funny,

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<v Speaker 1>but what but but some as you know, some investors

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<v Speaker 1>you know, have a food group industrial retail that they

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<v Speaker 1>focus on and that's all they do. The largest shops

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<v Speaker 1>tend to look at old food groups. And then you

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<v Speaker 1>do have things that change. Well that we used to

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<v Speaker 1>be industrial were no longer an industrial and those are

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<v Speaker 1>just you know, individual choices that are made. But but

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<v Speaker 1>industrial is the hot thing right now. We're listening to

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<v Speaker 1>Bloomberg Business Week. Gilbarrock still with us, US president, chief

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<v Speaker 1>executive officer for Coliers International, sticking with us for a bit.

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<v Speaker 1>I gotta ask you just in a couple of minutes

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<v Speaker 1>that we have here in this little phil as we

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<v Speaker 1>call it, New York versus l A, what are the

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<v Speaker 1>trends that that you're seeing. Yeah, well, l A last

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<v Speaker 1>year two thousand nineteen had the highest volume of sales

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<v Speaker 1>Capple markets higher than New York, which is interesting, right,

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<v Speaker 1>and it's a very different market. You know, this is

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<v Speaker 1>a New York. This because I'm here today is a

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<v Speaker 1>big off. There's big office stock, and then there's industrial,

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<v Speaker 1>you know, outside of outside of Manhattan. Of course l

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<v Speaker 1>A has less office stock than New York, certainly quite

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<v Speaker 1>a bit less, but big industrial. So dynamics are very different,

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<v Speaker 1>which is why it's been such a healthy market in

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<v Speaker 1>l A. That's not to say that we haven't seen

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<v Speaker 1>office sales in New York. We have, but industrial is

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<v Speaker 1>really disproportionately launcher out there. Apples to apples, right in

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<v Speaker 1>terms of the composition, apples to apples compare, and we

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<v Speaker 1>have the weather, yeah, and l A has just like

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<v Speaker 1>it just goes and goes and goes. And I mean

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<v Speaker 1>didn't talking to people when I was out there this

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<v Speaker 1>week to l A spread there are I mean it's unbelievable,

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<v Speaker 1>but you know they're there are parts of the city

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<v Speaker 1>that even five ten years ago, people wouldn't go to

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<v Speaker 1>or even think about living or working there. Right, that

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<v Speaker 1>is correct. So as you go east of downtown l A,

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<v Speaker 1>for example, that's now the place to be. You know,

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<v Speaker 1>you've got warehouses, and you pass some frankly not so

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<v Speaker 1>great areas and then you get the most popular restaurant

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<v Speaker 1>in the city or some of them. So this is

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<v Speaker 1>in line with the live work play right that that

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<v Speaker 1>there are areas that are certainly developing that you would

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<v Speaker 1>have never thought would develop to be what they are today.

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<v Speaker 1>Just got about ten seconds here. Are people still moving

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<v Speaker 1>back to the cities. Are we really seeing that trend?

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<v Speaker 1>I think so it is. I do think so. Yeah.

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<v Speaker 1>I think it's a millennial, young person's trend. Yes. But

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<v Speaker 1>continuing our conversation here on Business Week with Gil Borak,

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<v Speaker 1>he is US president, chief executive officer of Colliers International.

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<v Speaker 1>Longtime angelie. You know, we've been talking a lot about

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<v Speaker 1>uh that, and I wanted to pick up our conversation

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<v Speaker 1>Gil if we could kind of where we left off

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<v Speaker 1>with our guests who wrote Eat, Sleepwork, Repeat, Bruce Daisley.

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<v Speaker 1>It's a new book out. I believe you got a

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<v Speaker 1>copy of it. You never know what you're gonna get

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<v Speaker 1>hanging on in our green room. But um, you know, Lag,

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<v Speaker 1>he was talking about this notion of open offices. You

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<v Speaker 1>know probably as much as anyone about offices, how they're

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<v Speaker 1>getting built out. What the sort of latest and greatest is.

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<v Speaker 1>We're living in a sort of post not quite post

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<v Speaker 1>we work world. But you know, when we're having all

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<v Speaker 1>these big discussions about what the office of today looks like,

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<v Speaker 1>what do you make of it? So look, I think,

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<v Speaker 1>and I think I've said to you guys before, the

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<v Speaker 1>product that we work brought to the market was an

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<v Speaker 1>interesting and well liked product, right, And it was a

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<v Speaker 1>little bit it was a little bit more, had a

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<v Speaker 1>lot more pozzas than maybe what traditionally was out there. Um.

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<v Speaker 1>I think that that two things, like he one experience.

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<v Speaker 1>Everybody wants an experience, so even work physical the physical

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<v Speaker 1>space adds to the experience that people have at work,

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<v Speaker 1>their enjoyment or lack thereof. And we all know that

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<v Speaker 1>a drab, old office is not that exciting, right, It's

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<v Speaker 1>much better if you have what you have here at Bloomberg, right,

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<v Speaker 1>which is which is on one side of the equation

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<v Speaker 1>versus some of the old office space that we all

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<v Speaker 1>know and found kind of degree but used to accept

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<v Speaker 1>twenty five years ago. Our employee basis is more demanding today,

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<v Speaker 1>So it's about experience. And then the other thing is,

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<v Speaker 1>you know, we have multiple generations more than ever before

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<v Speaker 1>in the workplace, right because people are working longer. Um,

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<v Speaker 1>so we've probably got in many cases three generations in

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<v Speaker 1>the workforce. So variety is important. So I've never been

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<v Speaker 1>a believer that it's an all or nothing or a

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<v Speaker 1>zero sum games. So everything open, all, right, so you

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<v Speaker 1>have phone rooms, but that's an inconvenience. Everything open um,

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<v Speaker 1>you know, is probably not the best solution. Everything closed,

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<v Speaker 1>meaning all offices, is also not the best because people

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<v Speaker 1>do need variety. And I think day and age, you're

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<v Speaker 1>remiss if you don't have what we would call a

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<v Speaker 1>collaborative space, right, or bar stools or a couch or

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<v Speaker 1>a place to stretch or standing desks. I mean, there's

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<v Speaker 1>a there's a menu, a wide menu of things that

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<v Speaker 1>you can choose, and it's not that much more expensive

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<v Speaker 1>than traditional building out of walls. So I think variety

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<v Speaker 1>is important. And of course it's unique to each culture

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<v Speaker 1>and what you want to what you want to select

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<v Speaker 1>few employees, so I have to ask you, so, is

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<v Speaker 1>the availability or the necessity of that menu that's probably

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<v Speaker 1>good for your business? Right? It is? It is. It's

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<v Speaker 1>a higher up front investment very often, right, but you

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<v Speaker 1>generally tend to see more less square footage taken right

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<v Speaker 1>because the space is more efficient. So instead of these

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<v Speaker 1>big offices, you would get maybe three offices in the

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<v Speaker 1>size of a of of one charge office. So and

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<v Speaker 1>then people do tend to work a bit more from home. Uh,

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<v Speaker 1>and so you can really you know, nobody gets generally speaking,

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<v Speaker 1>they don't get a nameplate on the office. If you're

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<v Speaker 1>not there, right, someone else can use your office to

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<v Speaker 1>get higher utilization. So I'm wondering because I remember going

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<v Speaker 1>back a few years and having people to talk about,

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<v Speaker 1>you know, the investments that were going on in warehouse,

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<v Speaker 1>you know, building, and I think, you know, we see

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<v Speaker 1>that and it all makes sense. What are some of

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<v Speaker 1>the trends that you're seeing that maybe people aren't talking about,

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<v Speaker 1>but that you're definitely seeing it in the commercial real

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<v Speaker 1>estate mark. Yeah, well, definitely what we've just talked about, right,

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<v Speaker 1>everybody is paying attention to how the work what the

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<v Speaker 1>workplace looks like, and the design of the workplace office. Uh,

0:11:25.920 --> 0:11:29.640
<v Speaker 1>you know, we're seeing we're definitely seeing more live work

0:11:29.720 --> 0:11:32.840
<v Speaker 1>play type environments experiences at malls. Those are the most

0:11:32.840 --> 0:11:36.960
<v Speaker 1>successful malls, right, indoor, outdoor, medical, office and mall. That

0:11:37.040 --> 0:11:41.079
<v Speaker 1>sounds crazy, but it's close to people. This parking and

0:11:41.120 --> 0:11:42.440
<v Speaker 1>I can go to you know, I can go to

0:11:42.960 --> 0:11:46.400
<v Speaker 1>Nordstrom and then to the doctor. I meant extreme, but

0:11:46.520 --> 0:11:48.439
<v Speaker 1>in fact you can do that, and we have it.

0:11:48.640 --> 0:11:50.320
<v Speaker 1>We have a big story in the magazine this week

0:11:50.320 --> 0:11:53.800
<v Speaker 1>all about Walmart essentially building these like ten fifteen thousand

0:11:54.600 --> 0:11:58.680
<v Speaker 1>healthcare centers in their stories, and I have to think

0:11:58.920 --> 0:12:00.880
<v Speaker 1>part of that is coming from the fact that you

0:12:00.920 --> 0:12:03.600
<v Speaker 1>can go to a strip mall or a real mall

0:12:03.840 --> 0:12:06.480
<v Speaker 1>and there's an urgent and the foot traffic, right and

0:12:06.480 --> 0:12:09.120
<v Speaker 1>the fat traffic. Is that exactly what's what's the story

0:12:09.120 --> 0:12:12.120
<v Speaker 1>for retail in your view going forward? You know? Um,

0:12:12.240 --> 0:12:15.840
<v Speaker 1>so the facts are that that bricks and mortar retail

0:12:16.840 --> 0:12:20.240
<v Speaker 1>still grew in two thousand nineteen limited percentage, right, single

0:12:20.240 --> 0:12:23.559
<v Speaker 1>digit percentage, but it still grew. I think, and I've

0:12:23.840 --> 0:12:27.920
<v Speaker 1>read and I agree with the hypothesis that oftentimes a

0:12:28.000 --> 0:12:29.920
<v Speaker 1>return will go to a bricks and mortar store. You

0:12:30.000 --> 0:12:32.800
<v Speaker 1>might pick something else up. But that is happening the

0:12:32.920 --> 0:12:36.640
<v Speaker 1>return to to to to do the return electronically, it's

0:12:36.640 --> 0:12:38.280
<v Speaker 1>a bit of a pain, right, but to just go

0:12:38.320 --> 0:12:40.160
<v Speaker 1>to I'll just run to the store return and I

0:12:40.240 --> 0:12:42.520
<v Speaker 1>may pick something else up. There's also a lot of

0:12:42.559 --> 0:12:44.720
<v Speaker 1>things I think personally that many of us are not

0:12:44.760 --> 0:12:48.280
<v Speaker 1>comfortable buying online clothes, for example, you can buy a sweater,

0:12:48.400 --> 0:12:50.000
<v Speaker 1>you can you know, you can buy a switcher, but

0:12:50.280 --> 0:12:52.000
<v Speaker 1>I'm not going to go buy a suit online. I

0:12:52.040 --> 0:12:54.959
<v Speaker 1>wanted to touch and feeling, maybe even have some personal service.

0:12:55.400 --> 0:12:57.720
<v Speaker 1>So I think it has you know, So so all

0:12:57.760 --> 0:13:01.800
<v Speaker 1>that equates to um. You know, many bricks and mortar

0:13:01.840 --> 0:13:04.320
<v Speaker 1>stores still doing just okay. Growth is slower than it

0:13:04.400 --> 0:13:06.800
<v Speaker 1>used to be, but it's there and it's the combination.

0:13:06.880 --> 0:13:10.000
<v Speaker 1>Many brands are realizing. Uh, you know when when when

0:13:10.080 --> 0:13:12.600
<v Speaker 1>when e commas first became came out, it was like

0:13:12.960 --> 0:13:15.040
<v Speaker 1>the bricks and watar stores are dead. That that hasn't

0:13:15.040 --> 0:13:18.040
<v Speaker 1>turned out to be the case. It's more of a coexistence.

0:13:18.480 --> 0:13:20.080
<v Speaker 1>One of the things we know is we do not

0:13:20.280 --> 0:13:23.360
<v Speaker 1>live in nearly as much of a binary world as

0:13:23.200 --> 0:13:25.360
<v Speaker 1>anyone have us to leave right, much more of a

0:13:25.440 --> 0:13:28.560
<v Speaker 1>hybrid hybrid world for sure. Gil Barrock, so great to

0:13:28.600 --> 0:13:31.960
<v Speaker 1>get some time with you, US President and CEO of

0:13:32.000 --> 0:13:35.160
<v Speaker 1>Colliers International. Back with here, Back with us here in

0:13:35.160 --> 0:13:38.000
<v Speaker 1>New York, usually based out in Los Angeles,