CBRE Group, Inc. (CBRE) Earnings Call Transcript & Summary

All right. Thanks to everybody who have hung on for our last panel of the day. But actually, representing one of the largest business lines for real estate services companies, which is really what they are when you listen to this panel rather than brokers. And we also noticed when we were preparing for this conference, this business line really, it's more than just a [ Steady Eddy ] segment. It's a really legitimate growth engine for occupier outsourcing for the overall companies that they are within. I'm going to introduce everybody quickly and then we'll go to questions. Rick Bertasi is the Chief Executive Officer of Global Corporate Services at Newmark. Mr. Bertasi has 25 years of corporate real estate experience, most recently serving as the Head of Real Estate and Facilities for Bridgewater before joining Newmark in 2021. Then we have Vince Clancy, who served at Turner & Townsend for over 30 years, becoming CEO in 2008. As most of you know, CBRE acquired Turner & Townsend in November of last year, the really significant transaction. Chandra Dhandapani serves as Chief Transformation Officer for CBRE and Chief Operating Officer of the GWS segment. Chandra previously served as a Senior Technology Executive for 17 years at Capital One. And Paul Morgan, serves as the COO of JLL's Work Dynamics Americas segment. Mr. Morgan previously served 18 years at Johnson Controls, eventually serving -- and CEO, GWS for the Americas, playing a significant role in establishing merged global facilities management organization with GWS merger CBRE in 2015. We're super excited to have this group, and we're really looking forward to having the conversation. At any point, if you'd like to ask a question, feel free to write in, in the question box at the bottom and we will get to them at the end.

Okay. First question, I really want to talk about growth. I'll start with Chandra, if others would like to add in, please feel free. If you look at CBRE data, it's -- all of your great companies. It's kind of the easiest to get a long time series. The CAGR growth rate of this business has been easily 20% for the last 20 years. I keep waiting for this business to mature, but when I listened to the company calls that just got finished ahead of this panel, that certainly wasn't the takeaway in terms of the growth that was remaining. Maybe if we could frame it this way. Are there verticals or geographies where there's particular penetration left to go? I remember 5 years ago, there was a lot of penetration potentially in retail in Asia Pac, but it would really be need to know kind of what are these avenues of growth that gives you guys confidence, these businesses will keep growing?

Andrew, thank you. It's great to be on with all of you. First of all, we believe there's substantial growth ahead in our Global Workplace Solutions business. Earlier this year, we organized our business into 8 different industry verticals. As you know, this is a business where we work with large occupier clients. And by doing what we did in terms of focusing on industry verticals and focusing on what matters most to clients in a specific industry, whether it's health care, life sciences, financial services and so on, we are seeing another tremendous set of opportunities up here in front of us to differentiate and grow. You mentioned retail. We recently announced a partnership with Microsoft to bring a best-in-class technology solution for facilities management in the retail industry for distributed sites -- clients at distributed sites across the country. And we're seeing that grow well pretty much across every sector, every industry vertical. If I pull -- if I zoom out, if you will, the total market for integrated facilities management, we think, is about $160 billion and growing at about 6% to 7% CAGR. And this includes both in-house and outsourced spend. With the existing outsource spend, as you all know, still highly fragmented, so we believe it's ripe for a well-resourced global player like CBRE to take share. So overall, we expect to outpace the market. We did see growth moderate a bit during the pandemic, particularly when corporations outsourcing for the first time or switching providers when they lack the visibility to commit to long-term decisions that are part of typical contracts in real estate outsourcing. And of course, it's logistically difficult onboard clients when you're having all those lockdowns. However, growth has significantly reaccelerated; reaccelerated, if I can say the word, with our growth stepping back into double digits in the first quarter, and we expect this growth to continue through 2022 and beyond. So we have record pipeline and -- which is both, I think, a reflection of pent-up demand from the pandemic as well as our own pipeline reflected through our strong sales and solutioning team. So as Vince will probably cover in more depth, we are really excited about the opportunity to also partner with Turner & Townsend and take advantage of the secular growth trends that we see in the industries that Vince and team are part of which are new to CBRE. So let me pause there and hand over back to you.

No. Thank you, Chandra. If I could... By the way, I'm going to be humble. I think part of why the market -- we glean over the sector. We go, okay, leasing, I get that. Investment sales, I get that. And I want to make sure people really understand what your business is. You mentioned in and outsource, and I am embarrassed, because I cover it. So what does that mean?

So think about it as our -- the -- how do we win new business, Andrew, it's with either large occupier clients who use certain facilities management service providers today that they didn't switch to CBRE or they may be managing their facilities themselves, which we call they tend to insource their facilities management, and that's what we typically refer to as first in outsourcing. So both of those venues, I think are ripe for growth as we look ahead.

So in-source are people that basically have their own real estate department now, and they're switching to CBRE and outsourced would be?

Let's say they have it with any of our competitors in different parts of the world, and if they switch to CBRE.

Got it, got it, yes.

Yes. Andrew, could you just jump on the back of that, maybe?

Yes.

I think one of the things you look at -- I mean, this industry is vast. I mean, trillions of dollars of spend and we talk about $500 million, $600 billion potentially, the share of wallet that's out there with just the Fortune 1000 clients. Only a portion of that is serviced today, i.e., outsourced. They're using some kind of partner, whether it's one of the companies on this phone or further down into the value chain. So I guess that gives you 2 observations. The first is there's lots of opportunity with first-gen outsource, so there's still a vast amount of the market that's some untapped. And you can point to certain industries that have been in this -- used outsourcing as a business strategy for many years like technology, financial services. And then maybe those that are sort of starting to emerge more strongly like data centers you talked about, logistics, e-commerce, et cetera. So certainly industries. The second component, I think, linked to that is you've still got a significant amount of growth with those that have only partially outsourced their scope today. And just to put a finer point on that, we just wrapped up our future work survey, 1,000-odd respondents around the world that gets published in a couple of weeks. One of the questions we looked up there was what was their view around further outsourcing over the near term. Over 30% of respondents have looked to increase outsourcing either somewhat or significantly between now and 2025. And nearly 1 in 4 are looking to significantly increase the amount of scope of work procured on a global basis. So there's lots of, I guess, data there to support that outsourcing is going to continue to grow, and we continue to see the space expand over in the short and medium term.

Well, if we -- for a moment, if we build on that. The reality is the stuff that's currently outsourced amongst our firms and others at an integrated FM level or integrated services level, passing that around just basically moving share. And the real growth, I think a lot of what you're talking about in terms of increasing outsourcing from folks is stuff that they currently have outtasked or internal. And most of that stuff, I think you'll see, is outtasked. And what's going to happen is they're going to aggregate more of that because they can get more value by aggregating their demand, and elevate the way they're procuring it into more of an outsourced -- outcome-based contracts versus some of the outtasking piecemeal work that's being done.

I apologize. Like, this is going to be for a while, audience -- for some folks that are new, which is great to your companies. When you talk about the different outtasking, Rick, maybe you can talk about the different business clients that [ get to share ] outsourcing.

Yes. So by way of background, I've been doing outsourcing since you couldn't use the word outsourcing. Back in the early '90s, you literally could not say the word because it was so politically incorrect. And we built up a company doing that, which we then ironically sold to Johnson Controls, which is when I first came to meet Paul. And in that experience, right, there's -- when we talk about outsourcing, for the most part, we're talking about integrated multiple services. Those services are consulting work, advisory transactional work, facility management work. The facility management vertical includes a bunch of facility services things, different companies stay either at a management level like we do. Or they drop into the facility services execution level, which CB, JLL do more of than we do. In addition, there's technology services, data management services. And so what ends up happening is when you're talking about an integrated outsourcing, it's some combination of those vertical service lines. They get rolled up, bundled and aggregated either across all the services or across geographies or both. And so companies will look at splitting that work either by geography or it's an integrated deal for the Americas, an integrated deal for EMEA, an integrated deal for APAC, or by verticals. So they might say, we're going to outsource all the transactions to one firm, all the FM to another firm as they start to look at splitting that. The outtasking piece is not the label -- it's not the headline service. It's the service execution below that inside that vertical. That tends to be more common in things like project management. Project management is one of the integrated services that all of us offer. But within that, there are components where there will be pieces that are more -- companies tended to outtask more historically, and that's especially true in the facility management industry. If you go back in time, the facility management industry started from an IBM lift out of their facility management group and that the business built up, and it was a white collar management function. And then over time, as firms started to vertically integrate, right, they added service delivery capability. And so those things are now bundled for some contracts. Some clients don't want the bundle, but some contracts will be bundled vertically within the "facility management column." and they'll have things like engineers or day porters or receptionists. All different components of that which can either be self-performed by the larger companies or further subcontracted in the delivery model. And so the outtasking, when I reference it, is speaking to things like someone may have an FM firm that they're working in some geographies. And other geographies, they perform the management themselves, but they actually hire the service delivery work from other people. And you'll have people who do the whole thing themselves, but that will be way more exceptionally rare than the firms who do some of the things internally, and they are still a first-generation outsourcing model, as Chandra mentioned. But at the execution of the service delivery level, they currently outtask locally.

Got it. Now, this is all really helpful. Maybe to pull it all together, if we think of the TAM as being $160 billion, what do you think is currently insourced versus outsourced, using the language?

I think it's bigger than that.

I second Paul on that.

Yes, pick a number. I think it's multiples of that potentially when you think about more than just IFM. I mean, less than 20% potentially. So it depends what you include in that book at a cost, but that still gives you a lot of headroom for growth.

Yes. I think the fundamental point is every year we track it. We probably think the number is bigger than we thought. So I think it continues to grow, and it depends on how you define it. So our current estimate is it's about $160 billion, and we still think there's tremendous opportunity to grow.

Every year I've been in this industry, the number gets bigger.

Right.

Every year. I don't think anybody actually knows, to Paul's point.

Does it -- does it grow by, you think, by real GDP? Does it grow by -- overall climbing to ...?

I think it's geographic in part, right? When people measure the market at first, I doubt they included all of the things that have gone on in India, for example. And so the scale of opportunity in India by itself has grown way disproportionate to what we would have thought 15 years ago. So a lot of this is just markets become mature enough to them to be considered more fully.

And I would add to that, we think about our 4 dimension diversification strategy, which gives you a glimpse into property types that are growing. Industrial, as an example. Client types, tech media, telecom, going fast, service lines. We touched upon facilities management, project management is a growing business, and I'm sure Vince would want to chime in. And of course, geographies.

I just be happy to try because you were the biggest M&A event in the commercial real estate sector in the last year. But maybe it's like when -- yes, Vince, I would love to hear about -- I feel like you're an entirely new vertical. And I would love to know about your -- there's debate. You're so important to shareholders of CBRE. Would love to take a moment to hear about your business. You kind of -- what you're contributing and how it's complementary to CBRE? And I know it's a 60% stake and maybe you guys can talk about how you can work together?

Well, thanks, Andrew. And great to be here. Yes. I mean, I think, obviously, project management isn't a new vertical at all, it's a vertical that I think all the panelists will be provided to some degree or other. Our particular angle on it is that generally, we built a reputation around delivering program management, commercial management and project management on large-scale complex programs and projects, so that's our space. Going back to the demand question, it is a space where we see demand increasing quite rapidly. A whole series of big thematic themes driving that for us. We're lucky enough not only to work in real estate, but we also work across infrastructure and natural resources in clean energy. And if you look at those markets as a whole and the demand for program project management, we're seeing cities reinvent themselves. We're seeing the transition to net 0 cause a great demand for new projects and programs. We're seeing infrastructure needing to be replaced at a pace. And all these things coming together. I mean, we are pretty confident that the demand for new capital programs is going to increase significantly over the short to medium and long term. So we're very pleased about that dynamic. Going back to the question around the deal structure. Yes, at CBRE, we're delighted to say CBRE have taken a 60% controlling interest in Turners & Townsend. So Turners & Townsend was a partnership, and Turners & Townsend partners retain a 40% stake in the business, which is great, so we're very aligned about the future direction. For us, one of the great things around that is that we are staying as a sort of independently-operated company, which means we avoid the need for integration. So one of the real issues you get around acquisitions is that the integration plane, which, luckily, we're not going through, which is allowing us to really focus on revenue synergies and where, through working with CBRE, our combined offer means that we can generate more revenue going forward. And already that we're starting to see that happen, which is great. Already today, we are seeing a lot of opportunity there. I don't think neither of us would have gotten on our own, but together, we're managing to convert. So in terms of the deal structure, as I say, 60-40, we're retaining our brand, our existing management team are running the building, and what we're running the business. And what we will be really focusing on is working with CBRE on those areas where, collectively, we can join our capabilities. But that, for us, is in areas like footprint. CBRE has got an amazing access to markets around the world. So when we got our footprints together, we think is probably the most extensive globally. In terms of our client bases, we've both got obviously fantastic client bases. And once again, there's opportunities for both of us to introduce ourselves to each of our client bases. And from a product point of view, CBRE have got world-class capability in project management around the event space. For us, as I say, our capability is in the larger scale programs. So when you put those 2 things together, we think we create a relatively unique offering, which we're very excited about.

Vince, as a follow-up, could you give an example of one of those top priority projects?

Well, we do -- I mean, there's a whole set of. If you sat here in the U.K., we're one of the major partners on High Speed 2, which is the largest railway project in the U.K. If you went into the banking world -- or if you look at London at the moment, the 4 largest fit-out in projects in London, [indiscernible] and our project managers. Obviously, I don't like to mention individual clients so they; don't get upset, but I'm sure.

I can promise they're good, I was their client. They do a really good job.

Thanks, Rick.

Because the -- maybe along these lines, the prior panel of the -- we had EMEA panel, and one of the topics that came up, the challenge in offices in probably globally is coming up to the ESG requirements. Which is challenge to the landlord, because it could potentially lead to CapEx. I'm guessing maybe this is for the whole year, but that's actually an opportunity for you guys on the project management side.

Yes, no doubt.

Yes. I mean, the transition to -- next era, generally is a massive opportunity because for any company, to achieve their aims. And if you look, as we all know, most major corporates are now committed to a net 0 journey. To do that, you've got to do hundreds and thousands of individual projects to get there, and therefore, the real opportunity is to manage that as a program to integrate those activities, to do it in an intelligent way. And whether it be retrofit, whether it be the actual transition to net 0 in terms of creating the energy, renewable energy, all along the supply chain, there's going to be a massive demand for project management, promotional management, portfolio management, for all of us on the panel. I think all of our customers are going through the journey, and it's going to create opportunity. It's probably the biggest opportunity I think any of us have ever seen in a lifetime, is that transition. And we're seeing it really accelerate now the demand from our customers for assistance and project management advice in that space.

Yes. I think going back to the -- just to put a finer point on the survey I mentioned earlier, 46% of CRE leaders are planning -- accelerate investment in operating their facilities in a carbon efficient manner and 44% plan to accelerate investment in technologies that optimize building performance and maintenance. So as you said, that's going to drive project management activity in this space. It's where we're, for example, JLL is investing heavily both in terms of sustainability, advisory and capabilities to help those customers through the next couple of years in terms of sustainability management and program management as well. So it's a big opportunity for the market.

So to kind of summarize like when we're talking about why -- for those of you that get -- CBRE gives explicit kind of multiyear growth to double-digit growth of margin expansion. But JLL just had an amazing -- all of you had an amazing first quarter periods in these business lines, as we think of why this is growing and why that growth is sustainable. You have a really big TAM. The TAM is probably growing. There's new reasons for people to be using you that never has happened before. The geographies that are opening up and haven't been there before. All right. So we got the growth side. Now I want to pivot to the resiliency. And Paul, maybe if we start with you. If you look at the historical performance of this business line in different forms, as it transforms -- just did great. It might have slowed during COVID, but it's a positive during the GFC. If it was negative, it was fairly negative. Maybe we could talk about the defense of this business? What makes it kind of so inherently sticky that the growth tends to be positive?

Yes. So let me just start foundationally. This is predominantly an account-based business with significant long-term contracted revenues. Typical contract lengths, 3 to 5 years putting or pushing towards 5 then 3, and increasingly larger occupiers. So obviously, you've got the renewal of those contracts over time, which is pretty relevant. But we tend to overall have a very high renewal rate. So I think you can think of the business to some extent as largely countercyclical. And ultimately, what our clients doing here? You mentioned this word before about outsourcing versus outtasking. Ideally, they're trying to find a strategic partner. There's an extension of that individual in-house team, and invariably the real estate team become smaller. So you're an extension of our team without obviously access to much wider industry knowledge, expertise and capabilities. And that makes you pretty sticky, obviously, to get things done, particularly as you start working across broader portfolios. But clearly, as long as you keep delivering and constantly looking for opportunities to drive value as the client's business sort of continues to evolve. One of the things you think about -- just think about what we've just been through in -- during the last 2 years and the pandemic. We shifted -- the way in which work was executed by millions and millions of people from being largely in an office setting to outside of that office setting. So that was one big transition in a very short period of time. Linked to that, you have things like deploying -- rapid deployment of new cleaning techniques because you wanted to create a safe environment for our employees, looking at strategy around how do you optimize your workplace going forward. So all of this has to get executed in a very finite short periods of time. So again, you're a partner and extension of the clients and core business. I think fundamentally, what you're seeing emerge out of the pandemic now is a shift in the way work is going to get consumed in the future. I think the word hybrid, and now you get on to that probably in a short period here, that's the new normal. So we're going through another shift in the way in which work gets executed and then ultimately, the kind of workplaces that we have to design to support the execution of that work. So I think the moat is pretty strong around the industry. As I said, long-term annuity income. I think the bottom of my message, we feel pretty strong that the revenue is pretty durable in this part of the business.

I would add to what you said, Paul, that the stickiness comes from 3 principal things. The first thing is the cost of change is high, so you have to really want to change. There's a lot of firms out there who are satisfied even if they're not thrilled, but the cost of change is an impediment to change and it's material. The second thing is that the people management, this is -- parts of these business, in particular, pretty people-intensive, there's a lot of headcount, particularly when you start to do service delivery, and the management of that headcount and the resourcing gets transferred to somebody for whom it's core business, it's a lot easier. So Paul mentioned the cleaning example. A perfect example of a lot easier to rapidly change SLAs, delivery models, et cetera, with somebody who's a world-class supplier in that particular service delivery capability. And so those 2 things, in particular, become compelling as to the stickiness. And then the third is that portfolio has changed, right? And as clients change their portfolios, if you as a service provider can flex with them in a way that meets their needs and adapt to that, you become someone that they can't imagine not doing business with. For our clients, the feedback is, hey, when we change and you change just as fast, I mean we couldn't change that fast on our own, right? And so because their business adapts. And so we're helping them, we're enabling the speed of their support services to adapt. I think those 3 combinations create a real stickiness and a real hesitancy of companies to change providers. They will. But most of them, if they're satisfied, it's going to take something compelling for them to change. And so hence, the stickiness. And even if they change then, mostly what they're doing is they're just changing labels and continuing pretty much along the same lines.

I'm just curious, Rick, and all of you are nice, that through this panel, hopefully, we have some people who make these decisions on the call. Let's see if we can get some business for you guys. What is the main reason that a corporate real estate department would go, you know what, let's switch to outsourcing and using whatever your firms for the service?

I can tell you when I was the client when I did it. So I ran the global portfolio for the big -- one of the big international money center banks. And I outsource, because I could get better specialist talent. I could have better flexibility in my people management requirements. I had unquestionably faster, more nimble providers than if I were trying to do it in-house. And ultimately, I could get that specialization at a lower cost than if I was trying to do it myself because they brought a degree of expertise to me when I was the client, right? And that was at a global scale on multibillion dollar spend a year. And then as a service provider, those are the things that each of us are trying to provide to the prospective clients and to our current clients.

And I guess this -- Go Paul.

I was just going to say, just linked to that. I agree with all those comments. There's also an element of risk. You minimize your risk by leveraging a partner who -- it's their core business that are executing day and day out. And I suppose also at the end of the day as well as assurance. As the world continues to get more heavily regulated, certainly, obviously, sector, different sectors at different rates. How do you provide that assurance back that we're operating the facilities in the right way?

I would just add, I agree with the comments that both of you made. I would add that typically, when you're a head of real estate, you have stakeholders within your company, that -- who have increasing demands on what you deliver through real estate services. So what we find is we see clients gravitating to partners who can deliver globally on a consistent basis, cost is always important. However, service delivery and being able to manage risk and operate with excellence every day, I think that's paramount. And so if Rick mentioned if clients see that their service provider does that well, then there's less likely to be changed. But otherwise, there will be change.

It's been interesting to watch the industry [ above too ] Andrew, because back when I was on the client side, which was 12 years ago when I started there, the industry was at a point where most of the big consumers of services were trying to buy all services all places, and that's largely fragmented. Today, what you're seeing is almost all the biggest clients have multiple providers. And then they're looking at how to optimize the combination. There are clients who have all services all places. But the biggest clients tend today to be looking at, okay, I don't want all my eggs in one basket. I want to take advantage of who's best in which places or in which service lines, and they're trying to optimize the combination. And that will ebb and flow through time. I do think, to Paul's point about why it's sticky, too. I don't think this is a defensive business at all. This -- what we're going through coming out of the pandemic reminds me of 2008, and in 2008, that was the very best time. I was running a big European -- probably the biggest European outsourcing business at a time, and we doubled it in 2.5 years. And it was because there was significant change in the customer requirement, which forces customers to rethink everything from their demand to their delivery level. And the moment that happens, it just creates opportunities for people who can answer that new set of challenges. I personally kind of feel like we're going to be over the next 2 -- maybe 5, but at least 2 to 3 years, we're going to see a significant shift in demand requirements from clients, and then it's just going to be a function of who can be agile enough to respond in a good way. I think it's a growth market.

And so like the change, would you say it's work from home that's really leading to a kind of a stair step in demand in this business line?

In part. I would say there's multiple components that work from home is clearly one, particularly for knowledge worker, office occupancy businesses. But the shift in demand to -- for online shopping and the change in logistics that resulted is enormous. And that is -- that maybe that's driven for work from home because people are home, but it's just a shift in purchasing patterns. And that's not going back, right? So that shifted a huge amount of the opportunity in the industrial logistics sector for all of our firms over the past 2 years and probably continues for some period of time because I don't think that that's done. I don't know what the acceleration rate of that was, but I've read data around how much have accelerated the adoption of online shopping because of the pandemic. So I think a lot of this comes out of the pandemic, don't get me wrong. I think the trade war that's started in -- trade wars might be too stronger terms, so I apologize. But let's just say the trade spats between the U.S., China, Canada, Mexico, all of those things started to heighten then. That Evergreen boat, the side of the dock and the side of the Suez Canal heightened supply chain risk, then the pandemic blew up supply chain. All our supply chain designs over the last -- at least since the '90s, maybe since Nixon went to China, were optimized for cost, and now they're going to be optimized for delivery. And that means the entire way that people manufacture and distribute stuff is going to change. And I think the firms on this call are going to be significant beneficiaries of that repositioning of whole asset classes, both from work from home and the supply chain changes that come out of that.

You're already seeing it to some extent, on your Life Sciences is a great example around how do you manage supply and demand more effectively. So we're already seeing that in certainly industry. Over the last 2 years has been the most active sector, certainly on the leasing side, we've seen for a long time. So that's all going to flow down into this side of the business.

And about 70% of our surveyed clients, they expect to pursue hybrid as they return to the office. So we are seeing growth in the sectors, life sciences, industrial, et cetera, but office will remain important. And we're also seeing clients very focused on enhancing the in-office experience for employees as they look to get them back into the offices, so that also creates opportunities for service providers to support our clients.

And that's because you do project management, you would have to do new build-outs. Got it. I apologize. I can keep asking you [indiscernible] your question. Sorry, Rick, go ahead.

No, that's okay. I mean, every office space that hasn't been reconstructed in the last 18 months. Every one of them is designed for use it's never really going to have again, right? So all of these things are going to change in some fashion. And then as clients go to a hub-and-spoke, more hub-and-spoke models, right, those spokes need service support in some capacity. They can either be somebody's kitchen table or a nearby flex serviced office. We launched a product called [indiscernible]in the past year which is fundamentally designed to help clients optimize that optionality at the spoke for each individual employee, and I think that's a growth sector in the industry. We acquired Nortel, and I know CB invested in another flex company. I think those are growth sectors in the industry as well. As occupiers effectively repositioned their employees to wherever they're going to work in some hybrid version of what they're going to do. And then to Chandra's point, the people who do come into the hub office, they're going to be using it differently and there's a lot of work to do that.

I think just to build on that, there's 2 -- I think there's 2 things. One, to your point, office space is still central and key to the overall work ecosystem. It's just how it's going to get consumed, it's going to evolve and change. But I think linked to that, employees, employers right now have a real opportunity to rethink their overall value proposition. Obviously, the employees become more of a consumer of late. So how do you provide the amenities and the environment for them to feel valued and engaged as part of the overall organization? Just one, I guess, but as we do work for those preferences barometer. So this is a survey of how occupants use the space, and we're going to be publishing our latest research on that in a couple of weeks. I won't give you any insights right now, but it's going to show out some really interesting trends about how much time is going to be spent in the office? How much time will we spend at home? How much time will be spent in the third place? And how those 3 things play a part in overall work ecosystem and how works can get executed in the future. So really, point changes is coming here, and that's going to be great for our growth.

And ultimately, the reason you can do that is because the frictional cost of that distance has been not eliminated, but massively reduced. Could you imagine trying to do this 20 years ago? Man. We couldn't do this 20 years ago, right. So the frictional cost of that distance allows you to disaggregate the people, to let them go to a hub and spoke model, if you will, or a third place as Paul talked about or their kitchen table or whatever that is, in a way that was inconceivable 20 years ago.

I apologize, like, this is probably coming faster, so I want to make sure. I think we've hit how office like -- so the theme I'm getting is there's been a sea change in multiple businesses, which is leading to a stair-step increase in demand for outsourcing. It's everywhere I'm getting this wrong. I wanted to just go back to -- you guys mentioned specifically life science and industrial tied to the supply chain, if you could like just give examples of the services that you're providing that are generating revenues as a result of that?

Can we let Vince go first? He hasn't got as much airtime.

So I mean, for us, obviously, I mean, all the change that has been sort of talked about, whether it be remodeling offices, where we'd be onshoring in. And I think if you took the life side, life sciences market, the need to increase manufacturing facilities nearer to the requirement for vaccines, as an example. We're just seeing a huge increase in demand for new facilities right across the world. So for us, it's -- all these changes resulted in projects around remodeling existing estates, but a lot of capacity projects in markets as people onshore, so for us, we're seeing quite a bit of demand in that space.

I would add integrated lab services growing. And then there's so many different industries with its plant operations and in industrialist warehouses. So as Rick mentioned, the e-commerce growth has also impacted growth in industrial in terms of need for space. So I think there's tremendous number of tailwinds we've talked about on this call. which we believe will continue to help grow the industry.

And just to be clear, these are companies that used to manage their own warehouses and lab services that are now having a third-party operate it?

I think you've got a bit of everything. I think obviously, new entrants or those that are rapidly scaled in this space have obviously probably had to use more partnerships to scale the business so quickly, and that's going to come to play here as well.

So I think it is a good example there, though, because obviously, in the past, you've also got a series of new developer entrants into life sciences. So you've got a lot of your developer clients coming in who are developing their own space in life sciences to lease the life science companies as well. So it's a good example of how the markets are changing, and we're seeing the overall demand, it's the same as data centers in the past where we've seen a lot of private data center developers come into the market to create and partner with the big consumers data centers in order to get the capacity required, so I think it's both a changing market and increase demand.

Now I would add to those components, Andrew, that we -- one of the areas that we have a significant practice area is for site, demographics, incentives, analytics around all of the things that are getting reassured. And so we're engaged in a substantial number of very material investments by corporations to redo their entire manufacturing supply chain logistics end-to-end. And that starts with, okay, it's currently in country A and it needs to be in country B, where? And going all the way down through the operational delivery of that. So fairly active piece of work, scope of work currently in the market.

So I apologize. We're over, and you guys have been very generous for your time. One more that I -- this has just been terrific. One more before we close out, just margin how, should -- and this might go to anyone who wants to start this, might go to contract structure. Obviously, there's a lot of cost pressures. There's a lot of construction cost pressures, and one could imagine that impacting, for example, your project management business. Could you disclose how you're potentially insulated on that? Are you cost plus? Is there risk? Whatever like Chandra is like [indiscernible] publicly said you're actually heading towards higher-margin businesses within GWS, which is -- anyone who has views on the topic.

Yes. Maybe I can just make a brief comment. In terms of our margin profile, right, within GWS, without getting into specific numbers which you all can read about, right? So essentially, as in any business, our margins vary on a spectrum from lower-margin commodity type work versus specialized higher-margin services. Vince mentioned net 0 program management. Energy & Sustainability Services, as an example, are complex project management tend to have higher margins than some types of facilities management. Our margins also vary by client types and geographies based on the complexity and the criticality of what the facilities mean, whether it's data centers or whether it's other types of property as well. So in terms of risk, cost plus contracts have inherent inflation risk, inflation risk in particular built in. And most of our contracts are -- tend to be 3 to 5 years old, and most of it have some level of protection where we can on an annual basis, with respect to in different countries, whether CPI or other indexes to be able to adjust for price. Obviously, therefore, we think we have quite a bit of both in terms of inflation risk and being able to manage through that.

I just say linked to that, obviously, it's going to be an accelerant to challenge delivery models and also the infusion of technology to drive greater efficiency in what has historically been predominantly a labor-based model. And I think those 2 things are going to accelerate, produce some insulation against inflation. I agree with what Chandra's comments around some of the contractual models. But look, at the end of the day, everybody is resting with it. Our clients look to outsource because their partners are there to help them through volatility, through challenges around cost inflation, regulatory pressures. That's just part of what's factored into the way in which we execute and deliver services on behalf of our clients.

I would tell you, too, that -- we don't take inflation risk in our contracts. And so for us, it's sort of a non-issue. In some of the old school contracts where the suppliers take the first 3 to 5 points of inflation risk and then the clients typically carry the excess risk, think of it as sort of like a reinsurance split. Those are going to be problematic because nobody 18 months ago, 24 months ago, nobody saw this coming. And so the question will be, okay, how do you mitigate that? What can you work? How does the client help you with that? Is the client portfolio changing enough that actually you can absorb it by virtue of the change in portfolio, but it's -- I can tell you in some of the older contracts, that stuff will be -- that will create real management homework.

And Rick, where do you think those contracts lie? Would that be more of the people that are doing the small one piece.

I think mostly, there were small one piece things, they can become problematic, but it's not going to be that biggest share of the individual contracts. So I think we're where the real risk lies is in the largest where you might have the first 3% of inflation risk across the whole thing. Okay, that's a problem, right? And typically, nobody takes an uncapped inflation risk in the industry. That's just not a thing. But the allocation of that risk, that has a -- that's potentially problematic. We don't take that. So -- and our business is smaller than our competitors so it's a different thing.

Just to be clear, though, in terms of inflation risk, I think -- the takeaway is not, Andrew, that larger firms are sitting with a lot of inflation risk in our contracts. So as I mentioned, from a CBRE perspective, cost plus contracts, we carefully study this and we do not believe that there is significant inflation risk because of the way the contracts are structured. And also we have the opportunity where in many parts of the world, we -- first of all, we don't have FX risk as much either because we tend to charge in local. But this is an important point not to leave the panel with that says, I don't want you to take away this massive risk in the system because of inflation, because inflation is a concern for a lot of our clients, but our contracts are protected against that.

And Paul, did you have -- I saw a meeting where you're going to...

I'm just going to echo Chandra's comment. Don't walk away thinking we've got a massive hill to climb here. Yes, it's a concern. Of course, it is for everybody, inflation at these rates, right? But I think the other dynamic around inflation is it may loosen up the labor market a little bit, and we've seen a lot of sort of salary and wage inflation more recently. I think cost of living rises may start to sort of dampen some of that down, which... I mean, look, I'm not an economist, I'm not going to project the sort of future trajectory there. But I think it might actually sort itself out in shorter order than we all potentially projecting. And we get a stronger view on that and we do, actually.

And your part with inflation is that it actually creates an opportunity because you can add more value to clients on tech and?

For sure, it will create some opportunities. For sure.

I don't want to stop, but I think Vince, it's getting really late for you. Thank you so much. This was incredibly valuable, especially when so often, we do just focus on leasing and sales. And this commentary was unbelievably exciting, and it seems like a dynamic business. Congratulations that you get to be in this business line because that has to be a great adventure. Thank you so much again. I really appreciate it.

Thanks, everyone.

Thank you. Bye.