Disruption in Commercial Real Estate

by CoyDavidson on August 3, 2013

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The Idea CRE is Ripe for Disruption is a Myth

Disruption as defined by Wiktionary is the interruption to the regular flow or sequence of something. The term seems to be every start-up entrepreneurs and technologist’s favorite choice to describe the objective with their product or service.

Ever since the advent of the Internet in the late 1990’s, I have been hearing about disruption to the commercial real estate brokerage business. Does anyone remember Peter Pike? You know the reputation of the industry, a bunch of dinosaurs unwilling to change and late to adopt new technology. A market often described as ripe for disruption, particulary by people who don’t understand it.

So before I move on to the discussion as to whether the commercial real estate markets will or even can be disrupted lets take a look back at the last 15 years or so since the web has entered as a force in mainstream business. Has any particular company or companies disrupted how the commercial real estate brokerage business operates?

The only real candidates that come to mind are CoStar and LoopNet who emerged as the dominant players in commercial real estate research and property marketing and deliver their service with a web-based platform. Those of you have been around as long as I have will even recall that in the early days CoStar wasn’t even web-based.

However, I would argue that neither company actually disrupted the industry as the regular flow or sequence is the same as it always was. What they did do however is bring much needed new efficiency to the process of researching and marketing commercial property. Gone are the days of photocopying pages form Blacks Guide and pasting little dots on hard copy maps, and how many of us actually use direct mail these days.

What about Today?

I do recall back in the late 90’s early 2000’s significant discussion on whether the Internet would begin to link up the corporate user, purchasers and property owners circumventing the need for commercial real estate brokers.

Well, it is 2013 and corporate tenants are still using brokers to select properties and structure transactions and property owners are still using brokers to market their real estate assets for lease and sale despite the fact that relevant property data exists and is accessible on the web. Furthermore, who is in the market for property both tenants and investors alike is no longer a brokers best kept secret.

Why Has Little Changed?

I contend that little has changed and the demand for brokerage services will not diminish anytime soon, if at all because of one simple fact.

The reason is that commercial real estate deals are relatively complex transactions that involve multiple disciplines and participants: owner and user, consultants (brokers, architects, attorneys, contractors.) Leases and Purchase and Sale Agreements are complex legal instruments that can involve hundreds of thousands to millions of dollars.

Every real estate asset is unique, and it isn’t a commodity, ready to use in its current form or condition, creating a wide range of values. To put it simply transacting for commercial real estate is not like booking a hotel room or a plane fare and until commercial real estate transactions become less complex if ever, the need for experts who bring real expertise to the table will exist.

We Need More Efficiency to the Process not Disruption

There is a proliferation of new CRE tech start-ups that have emerged over the last couple of years. What they have in common is that they are attempting to bring new efficiency or improved processes to some aspect of finding and securing real estate, whether it is property search/research, marketing property or transaction management but they are not disrupting the process. They are seeking to bring new efficiency to the regular flow or sequence that can be impacted by employing newer, better and/or faster technology.

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The Broker Must Adapt

There is no question there is more data than ever before available to the property owner and user. The Internet makes it easier to gather information about property, who is using real estate and whom they might want to do business with. The fact you might know what a particular user or investor paid to purchase or use real estate does provide some insight, but doesn’t establish the exact value of the next transaction.

The broker is not in trouble as long as they adapt. The broker better be able to bring the latest technology tools to the table and be cognizant that the Internet is going to play a role in the consumer’s general knowledge of the marketplace and who is going to be selected to propose their services to both owners and users.

The bottom line is that the consumer still needs and wants the CRE brokers expertise. I agree the ability to create a competitive advantage with data is pretty much over. Your ability to take that data, analyze it and then make recommendations and implement effective solutions will reign. I for one welcome the shift from market maker to value provider. In reality, the top real estate professionals, the ones with the best clients in the hyper-competitive larger markets, made that transition years ago.

I do expect new technology players to emerge in the commercial real estate industry. Disruption? No, more efficiency for a complex process, Yes!

  • Gabriel Gonzalez

    Agree 1000%. I would even venture to say tech has actually become a distraction for some brokers that don’t find a balance. A lot of young brokers (I’ll throw myself into the young crowd) spend so much time behind a computer analyzing data and playing with the next coolest CRE app or program that we forget that #CRE is still a people business. The deals are out on the streets, tech should be an aid not THE business. Great article!

  • abuchanan

    “The broker is not in trouble as long as they adapt. The broker better be able to bring the latest technology tools to the table and be cognizant that the Internet is going to play a role in the consumer’s general knowledge of the marketplace and who is going to be selected to propose their services to both owners and users”…very insightful, CD. A CRE broker must be able to establish a digital footprint for a client’s real estate and for himself.

    Hope you are well!

  • Dominic Zabriskie

    Okay, so I probably use the word “disruption” a little too loosely when I talk about adding efficiency to the CRE transaction process.

    That said, I think we can both agree that there continues to be HUGE inefficiencies across the entire industry; many of which can be reduced (or eliminated altogether) through the use of technology. Great post.

  • Alex Lassar

    Segmentation will likely occur, at least for office (first). We’re already seeing that start happen. The workplace, and workers’ expectations of what ‘work’ means is changing– rapidly. This is commoditizing the real estate marketplace, and hence real estate decisions, by the day. Look at the meteoric rise in the number of coworking spaces and e-suites over the past 5 yrs. Look at the sublet ‘grey markets’ popping up in SOHO and SOMA, which are wildly efficient. Ironically, the larger deals will benefit the least from anything that comes along that has a whiff of being ‘disruptive’. Those deals will stay complex, and the productivity tools (the CRE Tech of yesterday, today, and tomorrow) offered to brokers will introduce bits of efficiencies here an there. Disruption will occur, like it has nearly everywhere else, in CRE– just in the ever-growing “commodity” market.

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