00:00Liz, let me start with you in some of the areas that Nora was talking about, about what AI is
00:04doing to this market. I know in particular you're seeing like this frenzy in Manhattan
00:09and San Francisco. Just how have volume levels exploded? Well, it's definitely exploded this
00:15calendar year. New York saw more AI leasing in the first quarter than it did in the entirety
00:19of last year. San Francisco recording record tenant demand again. And what's interesting is
00:2476% of the tenants we're tracking across all categories are looking for the same or more
00:28space right now. So pretty healthy demand. So is this like the hottest part of your market
00:32right now, would you say? I would say AI and also trophy. The trophy segment is incredibly
00:37performing as it has been for a while. We don't see that changing, especially in the gateway
00:40cities where the trophy is really pulling ahead from a spread perspective. I'm guessing for
00:44you best like high quality residential is still king. I wonder if you're seeing any AI related
00:49trades too or more residential properties popping up around some of these AI hotbeds or where
00:54maybe AI data centers are being constructed. Well, I think that the real estate, the residential
00:59is always hot and desirable. And the rental market, as you were talking about with AI, is
01:04there's such a like this like emergence of people like getting, finding information with AI and rental
01:10communities. But the residential real estate market has been really performing well, considering all the
01:16chaos in the environment. I was going to say, because there has been a lot said about K-Shape,
01:20about people worried about losing their jobs at AI. Maybe that's the other side to this trade. Is
01:25there any sort of anxiety that's holding buyers back? I haven't seen that. More of what's holding
01:29buyers back, I think, has been the political landscape. That's put pressure, the new taxes
01:34that are being discussed. I think the affordability issue is one. I think the higher mortgage rates,
01:40I think the lack of inventory, those are putting more pressure on the residential market than things
01:45related to AI. So I want to get to all those in a moment. But first, Annette, let me bring
01:49you into
01:50the conversation. You're seeing these megatrends in the US around AI data centers, around AI jobs
01:55in particular. How present is that in Europe? And if so, where are the opportunities there?
02:03I would say it's very much present in Europe as well, even though, as we know, it is a more
02:07stable
02:08environment here in Europe, generally speaking. I would say, of course, we're seeing the dynamics of it,
02:12right? Clear winners of AI, digital infrastructure. You talked about data centers already.
02:18Clearly a big bet that people are making in Europe as well, where the markets are probably
02:22a little bit behind the US. We have lower supply levels in data center space compared to the US.
02:27So some catch up to do and therefore probably an even more outsized opportunity there that we
02:31strongly believe in. At the same time, I think AI also creates your divergence and stronger obsolescence.
02:37So it is something to think about in your investment strategies. Looking at office,
02:44we probably expect a bifurcation of the bifurcation. So even more high-manetized,
02:50high-quality space that will be in demand, but even more difficult for a secondary space.
02:55And it's also about which cities to invest in, right? AI will probably generate higher capital
03:01returns versus labor returns. And as such, going to capital-rich cities is probably a good strategy
03:05in the AI context. There's certainly a lot of question marks and kind of on the same note
03:12of best as legislation around some of these investments. And Annette, especially for Europe,
03:18when you're dealing with maybe more of a fragmented market, how are you thinking
03:20about AI investments in data centers when there has been growing political pushback?
03:28You know, we continue to believe in the opportunity when it comes to data centers. I think we're very
03:33much focused on tier two, tier three cities, because what we see is, you mentioned the fragmented
03:39markets in Europe. Data sovereignty is a big topic. So we always want to be in data centers that are
03:45in specific countries close to the consumers, where you have, you know, the availability of fiber,
03:50of power, which are important factors to look at. AI definitely drives demand beyond that.
03:57Training AI, for example, which you may want to do in more remote locations. But we have stronger
04:01convictions where you're close to the final customers as a longer-term play.
04:06Are those trends very similar in the US too, Liz?
04:08I think they are very similar, yeah. I mean, power is really driving the show as it relates to demand,
04:13and we know that. But it's power, and then it's people. And that's what you were talking about,
04:16too. It's talent. Talent is a huge driver of the office market, and of the industrial market as
04:21well. And I think as you look at the talent trends, that's really where the opportunities
04:25for investment are. Yeah, because the AI can certainly empower real estate agents,
04:30professionals to give them information, get it to the consumer quicker. But for example, for us,
04:34when you're selling a home, it's sacred. They want to talk to a person. You're opening drawers,
04:39you're in their closets, you meet their kids, their dogs, all that stuff. So AI is not going to
04:43replace that, but it can certainly empower the process. Well, and just to also get back to that
04:49other point about tax regimes and how that's impacting things, DeSantis today finally put out
04:55his proposal to scrap a large chunk of some of the property taxes happening in Florida. Is that
05:01migration just going to pick up steam of some higher tax regimes into lower tax regimes residential?
05:07I think we've already seen a lot of that. We've seen an out-migration of New York to places like
05:11Florida because of our tax policy. And now there's going to be this pied-Ã -terre tax that's going to
05:16probably get enacted in July. And I think that's going to change purchasers' behavior. They're not
05:22going to buy second homes here. I think it will have a very negative impact on the market in New
05:27York
05:27City. And we'll see more people deciding to invest in Florida versus New York, which I don't think is a
05:32great idea. Is that, I mean, then does the Florida property market, how hot does it look then? Do
05:39valuations look frothy, kind of artificially so because of what's happening? Well, they've already
05:43been frothy. I mean, look at Palm Beach. I mean, you can't keep anything on the market there. It sells
05:48right away. Everybody's going there. The demand is so high and there's not enough supply. So it has
05:54already been a little bit frothy. Will it get frothier? Probably. What about the political pushback,
05:58as I mentioned to Annette, that's happening in the U.S. around data centers? I'm from Northern
06:01Virginia and there's a lot of drama there about locals saying we don't want data centers around
06:07here. When it comes to the AI infrastructure, how much are you having to think of more local
06:11legislation? I think that's certainly a factor. But one thing that we're seeing more and more of
06:15is the advanced manufacturing jobs that are going proximate to those data centers. So when can you
06:20bring jobs proximate to those other activities that are needed to fuel the economy? And that's where we're
06:24seeing the real opportunity. So I think it's worthwhile just while we have
06:28you three here taking a step back just on this rate environment and what that's doing. And Annette,
06:32let me start with you because in Europe you're facing more of an acute issue when it comes to
06:36energy. You've had central banks, the ECB more front forward saying maybe the next move might be a hike
06:42instead of a cut. How is that impacting your investment thesis at this moment?
06:48I think it's a bit of a continuation of what we've been seeing in the context that
06:53it's an uncertain and a volatile environment, right? It's hard to predict what rates will be
06:58doing. And as such, the focus needs to be very much on resilience and on income.
07:02So it's back to the basics in real estate. We're looking at assets that offer long-term stable
07:08inflation-hatched income. And then you're looking about how to drive NOI at the asset level and be
07:15very operational, deliver operational excellence to drive that NOI. You can't do a broad-based sector bet
07:21anymore, like you could. But logistics, for example, was a bet that many people made because
07:25you had a lot of cap rate compression. Unlikely in this environment. So it's about creating that
07:30resilience at the asset level and be very selective where you invest and where you see that income.
07:34Liz, I see you shaking your head, kind of similar outlook for you.
07:37Yeah, absolutely. It goes back to the asset level. What is the asset? What are its fundamentals?
07:41What capex can you put into that asset to position it better? And where is the tenant demand? And where
07:45is the tenant demand going to be durable beyond this cycle that we're in?
07:48And I guess for residential, it's, I mean, it's been, it's been the issue you've been pointing
07:52out. We've been talking about the rates. Yes, exactly. I mean, historically though,
07:56Danny, they're still low, but they just are not going to change or go down to like 3% or
08:004%.
08:01It's just not going to happen. There's no catalyst for that. And we're not going to get a cut from
08:05the
08:06feds. So I think buyers need to accept the fact that this is where rates are 6%, a little bit
08:11above.
08:11I don't think that's changing anytime. So it doesn't even go up.
08:14Does supply change anytime soon if the rate side of things aren't going to?
08:18I mean, it's, that's been the push and pull. We can't get supply and demand to like,
08:22come together. As I always say, like, it's like the boys and girls at the dance,
08:25we got to get in the dance floor and get things done. And so I think we need to have
08:29more incentives
08:29based on getting more supply, like upzoning. We need to do more city of yes,
08:34and less rent freezing and more city of yes. That's my opinion.
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