Closing Market Summary: Bears Dominate on TuesdayWall Street took it to the chin on Tuesday as equities sold off into the closing bell, leaving the major averages at their worst marks of the day. The tech-heavy Nasdaq (-1.6%) was hit the hardest as technology and biotechnology stocks weighed. Meanwhile, the S&P 500 and the Dow settled with losses of 0.8% and 0.5%, respectively.
There was a notable jump in long-term rates on Tuesday as sovereign bond markets came under selling pressure in the wake of a morning remark from ECB President Mario Draghi that the threat of deflation is gone. The yield on the 10-yr Treasury note jumped six basis points to 2.20%, which contributed partly to the selling activity in richly-valued technology stocks and the underperformance of rate-sensitive areas like the S&P 500 utilities sector (-1.3%).
However, the heavily-weighted financial sector (+0.5%) benefited from the activity in the Treasury market as it resulted in a steepening of the yield curve, which is a positive for the financial industry's bottom line. The win marks the second in a row for the financial group and comes ahead of tomorrow's capital return plans, which will be released after the close.
Like financials, the energy sector (-0.2%) finished ahead of the broader market as crude oil cruised to its fourth-consecutive advance. Underpinned by a weaker dollar, the energy component jumped 2.0% to $44.25/bbl. Meanwhile, the U.S. Dollar Index (96.07, -1.04) tumbled 1.1% to a fresh nine-month low in reaction to the aforementioned remark from Mr. Draghi.
However, in the end, the bulls were just no match for the bears on Tuesday as ten of the eleven sectors finished in the red. The top-weighted technology group (-1.7%) finished at the very bottom of the leaderboard amid broad weakness. Alphabet (GOOGL 948.09, -24.00) was one of the sector's weakest components, dropping 2.5%, after European antitrust regulators hit the company with a $2.7 billion fine for skewing search results in favor of its own shopping site. Chipmakers also displayed notable weakness, sending the PHLX Semiconductor Index lower by 2.7%.
The lightly-weighted telecom services space (-1.4%) finished just a tick ahead of the technology group following news that Sprint (S 8.18, +0.17) has entered into exclusive talks with Charter Communications (CHTR 329.87, -2.78) and Comcast (CMCSA 39.25, -0.34) regarding a wireless deal. Wireless heavyweights Verizon (VZ 44.84, -0.91) and AT&T (T 37.70, -0.45) declined 2.0% and 1.2%, respectively, following the news.
Biotechnology stocks also exhibited notable weakness, leaving the iShares Nasdaq Biotechnology ETF (IBB 310.89, -8.65) lower by 2.7%, as investors took some money off the table following last week's biotech rally. However, the health care sector (-0.9%) held up relatively well, settling just a tick below the benchmark index.
Outside of real estate (-0.4%), the remaining laggards--consumer discretionary (-0.7%), industrials (-0.8%), materials (-0.7%), and consumer staples (-0.9%)--finished roughly in line with the broader market.
Also of note, the Senate decided to push back a vote on the Republican healthcare bill until after Congress returns from the July Fourth recess, as most expected.
Reviewing Tuesday's economic data, which included the June Consumer Confidence Index and the April Case-Shiller 20-city Index:
- The consumer confidence reading for June rose to 118.9 from the prior month's revised reading of 117.6 (from 117.9). The consensus expected the survey to hit 116.7.
- The key takeaway from the report is that consumer expectations for the short-term have been reined in some, but are still upbeat overall.
- The April Case-Shiller 20-city Index hit 5.7% (consensus 5.9%) to follow last month's unrevised 5.9% increase.
On Wednesday, investors will receive the weekly MBA Mortgage Applications Index and May Pending Home Sales (consensus 0.5%). The two reports will be released at 7:00 ET and 10:00 ET, respectively.
- Nasdaq Composite +14.2% YTD
- S&P 500 +8.1% YTD
- Dow Jones Industrial Average +7.8% YTD
- Russell 2000 +3.4% YTD
“I think we have a shot at building the best office building in the world” were the words Steve Jobs used to describe Apple’s new headquarters in 2011. The grand vision at the heart of his last project is now being unveiled as Apple finalizes construction on Apple Park. Wired called the facility “insanely great (or just insane),” and in many ways it is exactly that.
The sheer magnitude of Apple’s new headquarters sets it apart from any other technology workspace on the West Coast. Instead of many buildings spread across a campus, the site features one master circular structure (2.8 million square feet) called the Ring, designed to house 12,000 employees. (To get a sense of its scale, the Ring’s internal courtyard is wider than St. Peter’s Square in Rome. Its external wall would surround the Pentagon.) The four-story glass building designed by Norman Foster seamlessly integrates a long and diverse list of technical achievements — from the enormous solar panel array on the roof to hidden cable management mechanisms at the workstations — all according to Jobs’s uncompromising design standards.
Yet one of Jobs’s most significant directives was that 80% of the nearly 200-acre site would be devoted to parkland. In fact, blurring the boundary between architecture and nature became the defining idea for the project. Old concrete parking lots gave way to new green landscapes and a wooded preserve populated with 9,000 indigenous California trees, including ornamental and fruit trees, selected to resist drought and the threat of future climate change.
While many have awaited the opening of Apple Park with great anticipation, a project of this scope and ambition inevitably isn’t without its critics. In that same Wired piece:
…what began with aesthetic judgments of the digital renderings—the Los Angeles Times’ architecture critic called the Ring a “retrograde cocoon”—has lately turned to social and cultural critiques. That the campus is a snobby isolated preserve, at odds with the trendy urbanist school of corporate headquarters. (Amazon, Twitter, and Airbnb are all part of a movement that hopes to integrate tech employees into cities as opposed to having them commute via fuel-gobbling cars or numbing Wi-Fi-equipped buses.) That the layout of the Ring is too rigid, and that unlike Google’s planned Mountain View headquarters (which that company has described as having “lightweight blocklike structures, which can be moved around easily as we invest in new product areas”), Apple Park is not prepared to adapt to potential changes in how, where, and why people work. That there is no childcare center.
Certainly some of those critiques may prove to be warranted, and others raise valid points. Overall, it’s probably fair to say that a project of this complexity and scale can only be truly evaluated post-occupancy and over time.
As someone who studies the design of high-tech workspaces, I am drawn to ask a more fundamental question: Why is Apple heading in such a different direction than most of its Valley peers? In other words, what is this project really about?
The answer starts, as in all things Apple, with Steve Jobs.
How We Got Here
To set this in context, it’s important to first understand the fundamental challenge of building contemporary (and future) workspaces, especially for technology companies: Software and buildings operate on entirely different timescales. Software, like information technology in general, is optimized for speed and upgrades — constant, sometimes radical change. Buildings, on the other hand, are change averse, optimized to stand for decades. But despite the different timescale, the challenge for real estate executives is not unlike the one facing CIOs: to make sure a new investment will not quickly become obsolete.
Silicon Valley has dealt with this challenge for decades, but the unique culture of the region gives its companies a competitive advantage. Throughout the 20th century, the Valley’s ascent can be traced to close geographical proximity and deep collaboration between tech companies, academia, and government agencies — a formula that produced some of the most significant technology ventures in modern American history.
Influenced by this collaborative context, Valley founders prized proximity to one another; face-to-face interactions; informal deal making; and changeable, impermanent team and org structures. These values are reflected in their buildings, which adopted design strategies to make workspace configurations adaptable, or somewhat less permanent. The aim was to get the physical workspace to perform at the speed of software — or at least get a little closer to it.
This led to open floor plans, rich amenities and services, informal attire, a collegial atmosphere, and very distinct work cultures. The more successful interior spaces foster “collisions” and spontaneous interactions among employees through a variety of space typologies. Those collisions, as research (mine and others’) shows, increase learning, collaboration, and ultimately innovation.
In the last decade, however, the timescale gap between workspaces, buildings, and technology has widened even more rapidly, as mobile phones, social media, and other new technology have allowed companies to quickly reach massive scale. New young tech companies — Airbnb, Twitter, Instagram, Snap, and WeWork, among others — operate differently than Silicon Valley giants. They acquire huge customer bases and receive staggering market valuations while employing a relatively small number of people. Their business models are fluid. Their speed and disruptive scale inevitably force them to choose workspaces that emphasize extreme flexibility, impermanence, and the ability to be reconfigured to accommodate rapid growth.
For this new tech workforce, work is less a “place” built through furniture, and more a digital collaboration space built by networks. Having grown up communicating and working through mobile devices and social networks, younger workers and founders see themselves and their work as “mobile” by default. Not surprisingly, this shapes their expectations of a workspace.
The model emerging to support them is a network of corporate offices distributed among the commercial shops and public spaces of a neighborhood community. Workers move freely through these different spatial contexts, bumping into colleagues, collaborators, potential partners, and other urbanites. Work happens anywhere and anytime within this urban fabric. It mirrors the nature of online interactions, where personal, social, and professional lives interconnect naturally at all hours.
These responses to the rapid change of technology seem reasonable when one thinks about how most companies measure their real estate investments. Mostly, the focus is on efficiency: cost and profitability per square foot, vacancy rates, maintenance overhead.
When it comes to Apple Park, however, the metrics used to measure the reported $5 billion investment appear more complex and nuanced. They belong to an entirely different domain, and perhaps a different category of buildings altogether.
Enduring Value Beyond Efficiency
This brings us back to Steve Jobs, who didn’t think about corporate real estate only in terms of efficiency, amortization, and physical adaptability. His final interviews leave us with a clear sense that this project was intended to carry great symbolic value: “My passion has been to build an enduring company where people were motivated to make great products. Everything else was secondary.” And, “I want to leave a signature campus that expresses the values of the company for generations.”
He probably knew the Churchillian adage that we shape our buildings, and then they shape us. In fact, his raw instinct for manipulating space to influence behavior was well known since the days of designing the Pixar campus in 1998.
A decade later, the design concept for Apple Park expanded his approach and legendary attention to (some say obsession with) functional detail to a higher level of sophistication. Today the almost finished project conveys Jobs’s aspirations through significant breakthroughs in the building systems of our time:
Innovation in exterior building systems. The ring is a curved glass façade. Not a single flat sheet of exterior glass was used, and the company made a manufacturing modification so that the hue of the glass would not be green. The main café is fronted by the single largest sheet of curved glass in the world. This design maximizes the connection between the worker and nature just outside the windows.
Photo courtesy of Apple
Innovation in structural systems. To achieve the curvature of a perfect circle while minimizing landfill use, the project developed its own concrete plant. Ninety-five percent of all the concrete from the old HP campus — buildings, parking lots, sidewalks — was ground and recycled on-site to build the concrete frame of the new building.
Innovation in mechanical and electrical systems. The building counts one of the largest solar panel arrays in the world, with the aim of powering the entire campus with electricity generated on-site. The mechanical air conditioning system is designed to make this the largest naturally ventilated building in the world. A former director of the U.S. Environmental Protection Agency leads the project’s environmental aspects.
Innovation in workplace systems. Not an open plan. The overall strategy for the workspace is based on modular “pods” dedicated to either teamwork, focused work, or socialization. The rhythm of the pods “permits serendipitous and fluid meeting spaces” along the circumference of the Ring, connecting interior high-tech environments for productivity to panoramic views of the exterior landscape, orchards, and sunlight.
It’s not just these large-scale design moves that convey the building’s aspirations. Doorknobs, glass doors, desks, even faucets are formed to fit and contribute to the overall experience of the space. No detail rushed, no off-the-shelf solution used. Every touchpoint seems to present an opportunity for timeless design. Arguably, like in an iPhone. Or, in the world of buildings, a cathedral.
Apple Park may actually have more in common with that category of architectural project than with other corporate workspace ventures. Cathedrals carry symbolic value, aspirational visions that go far beyond their function. In fact, the very great ones in Europe required significant innovations in the architectural technology of their time in order to achieve their vision — think Brunelleschi’s Dome in Florence, the flying buttresses in Chartres, the vaulted roof in the Duomo of Milan. As with those types of buildings, technology breakthroughs were necessary for Apple Park’s vision to exist; extraordinary details and craftsmanship were necessary for it to inspire.
Closer to home, a more practical analogue is this. In the world of technology workspaces, we haven’t seen this sense of timelessness and the deliberate intent to build far into the future in over half a century, when the same long-view ethos produced the Sandia National Laboratories, NASA Johnson Space Center, Fermilab, or the Manhattan Project. These 20th-century projects were symbols that inspired many generations of workers to see their work as part of something bigger, to employ their talents in advancing new frontiers of science and technology innovation for all.
Beyond its function as a workspace, Apple Park may ultimately aspire to a 21st-century version of this ethos. This project is about a legacy, timeless design, and the belief that the design of a headquarters can shape a company’s trajectory and inspire generations of future workers and leaders for years to come.
Contrarian and Obsolete?
To many critics, Jobs’s vision doesn’t make a lot of sense. From the Wired article:
“It’s an obsolete model that doesn’t address the work conditions of the future,” says Louise Mozingo, an urban design professor at UC Berkeley.
“It’s a spectacular piece of formal design, but it’s contrarian to what’s going on in corporate headquarters across the tech industry,” says Scott Wyatt, an architect at NBBJ, a prominent international firm that has designed buildings for Google, Amazon, and Tencent.
There’s no doubt that Apple Park stands in stark contrast to the flexibility and speed of successful contemporary workspaces for Silicon Valley and the tech startup set. But it seems inaccurate to state that Jobs’s vision wasn’t taking the future into account.
At a time when the future of work itself demands closer contact with machines, Apple Park deliberately sets human workers in closer contact with nature. Jobs’s vision wasn’t concerned with whether future employees will rely on AI interfaces, telepresence robots for collaboration, or augmented reality for prototyping. He envisioned an enduring building that would be relevant 100 years from now, like a cathedral or national lab.
Most technology companies want to build workspaces that can adapt over time. Understandably, they want to hedge against unpredictability and rapid change. Apple instead is building a campus that aims to inspire and stand the test of time. It is not a hedge. Little that Steve Jobs did was.