Future of commercial real estate brokerage
There is a lot of talk about technology, AI, and the availability of information online disrupting the current commercial real estate brokerage model. Curious to get peoples thoughts on the future of commercial real estate brokerage. Is commission compression on the horizon? Are commercial brokers slowly becoming obsolete? Are more and more firms moving towards a team model with base salaries and lower commissions?
Look forward to hearing everyone's thoughts.
Brokers will definitely still exist simply because of the knowledge that good ones provide. I don't have time in my day to know every deal in the market and it doesn't make sense for me to keep a capital markets research team on payroll to be able to keep up with financing projections. I also don't know all of the major decision makers who buy property on a first name basis or have the ability to pick up the phone and call them directly to get them interested in a deal.
On the MF IS side, they get paid for that knowledge and ability. I want them to tell me how to manage the last 10% of a lease up because they know buyers have changed how they view concessions in the last year and a half since I sold my last deal. I want them to be able to spend a month wining and dining heads of acquisitions to get them to experience my projects and see their potential on an emotional level as opposed to just dividing NOI by the cap rate so that when it's best and final time, they pay the extra million they wouldn't have because dammit they're not going to lose this deal to someone else. I want them to push back strategically when a buyer tries to retrade me based on some bullshit projected tax number because I would tell the buyer that their analyst is a dipshit who can't do simple math and they should fire the kid and go fuck themselves and that approach isn't beneficial for the transaction.
There are a lot of dumbass brokers out there, but the good ones are worth their commission and more.
Going to go against the grain here and say yes, they will become obsolete. I'm sure 10-15 years ago the thought of residential agents become obsolete was crazy, but sites like Redfin and are really changing the game (+ availability of data online and ability to perform 3d tours).
In CRE, services like Compstak are allowing owners to get a better understanding of market comps and competing building rent rolls. This is reducing the value brokers bring on the data front and allowing owners to spot opportunities. It's amazing how much info you can find using Google and searching SEC filings as well. There is so much money in CRE that it is inevitable that more services like this will become available. Plenty of historical examples of services that were previously reliant on human expertise that are being eliminated (travel agents - expedia, stock brokers - charles scwhab and ETFs, etc).
The question, in my opinion, is when not if. CRE is incredibly inefficient so there is seemingly a long way to go. That being said, technology tends to progress industries a lot faster than people expect and the rate of change is accelerating.
I'll probably get some angry responses from brokers here. Who knows, they might be right. I'll just say that history is not on their side.
That's like saying attorneys/ accountants will become obsolete because of sites like Legal Zoom and Turbo Tax. The tech only competes with the bottom of the market. The top players at top firms are incredibly valuable pieces of the puzzle that is CRE.
I work at one of the largest firms, and I can tell you that we don't really even trust CoStar data. Our internal stuff is so much better.
I believe we will continue to see consolidation (HFF>JLL) and will be stuck with 2-3 mega brokerages that cover 70-90% of all markets, and then boutiques that cover what doesn't make fiscal sense for the big ones to work on. I definitely do think we are moving towards the base salary with bonus model though, will take some time but it is definitely headed that way.
I'm more surprised that they still exist. Can't think of any here (not that there 100% aren't, but if you can't think of them...)
I can only speak to San Diego, but I'm sure it's the same everywhere, more and more people are going independent or joining regional shops. I've been on my own since 2001. There are some really heavy hitters here that are one man shops and lots of guys are starting small brokerages. Why? Because the very technology that was supposed to make us nonexistent is allowing us to compete with anyone and everyone big or small. The internet leveled the playing field for the most part.
I mean, CBRE still links to loopnet off the CBRE website for "available properties." Been this way since the late 90's.
I'm independent, my buddy works at a large indi shop here in town (20+ brokers though)...He and I just put the largest (available for sale, not in existence) ocean front apartment building in escrow in SD County a week ago. None of this product turns over so, an $11mil ocean front sale is almost 50% larger than the previous record. You'd think a large shop would land one side, right? No. And it was brought to us by a resi broker. This just goes to show it's still about who you know and not the name of your shop or that tech would have procured a sale by itself.