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.
Hi mbt989, whoops, looks like nobody chimed in here.... maybe one of these discussions below is relevant:
Hope that helps.
Bump
I think CRE has so much asymmetric information and key advantages to those who either know the specific market extremely well or can operate at a massive scale. I think resi brokers are going by the wayside though.
My theory is bad/ unskilled brokers (Remax Commercial) will fall apart. There will always be room for the Eastdil/ HFF/ JLL/ CBRE brokers out there.
The CRE market is so inefficient I don't see brokers going away.
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.
Speaking from personal experience, eh?
Taxes are the big hangup these days. Fuck Ryan.
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.
In the late 90's they said agents of all type would be obsolete in 5-10 years. There will always be the upper crust even if technology takes over. Someone has to be the punching bag. Also, I'm curious to see Redfin stats on sales price versus broker listed. Time and time again FSBO sellers list too low or too high.
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.
Thanks - great feedback. Interesting to see you mention a move towards a base salary model being an emerging trend. Another emerging trend I've read a lot about is the move towards more of a team model and less solo practitioners. Do you feel solo brokers will soon be a thing of the past in CRE brokerage?
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...)
"The tech only competes with the bottom of the market."
Pretty much the answer to every question about tech "taking over" something.. Tech "took over" equities trading but turned it into a new type of career called quantitative trading and got rid of cowboy cash equity traders.
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