And it starts with a phone call………
I get all kinds of wonderful people who reach out to me for various reasons and in this instance it was to discuss what technology may do to the structure of commercial real estate brokerage.
Let me explain.
The rise of the new interactive mobile data information and technology is likely to bring about three general changes to the commercial brokerage industry.The first, which already is occurring, is the development of specialist firms that perform only a part of the brokerage process such as the research or listings function.Think about the major firms.What do they all hang their hats on? Research!
The real issue for the commercial brokerage industry is not whether the research function largely will be outsourced in the future, but who will provide and control the data. If a stand-alone, for-profit firm proves itself to be highly profitable,there will be some type of collective response from the brokerage firms themselves to capture some of that value.
The other interesting and ironic solution is to create some type of multiple listing service platform.Also the stand-alone firms may share some of their profitability with the brokerage houses by lowering fees.With that other parts of the brokerage process will be outsourced to non-brokerage firms as technology advances and adoption rates increase.
The second area of change involves how new technologies have and will continue to influence the existing operations of traditional brokerages.
New technologies already have interacted with the trend towards corporate outsourcing to make it easier for large brokerages to more efficiently manage complex portfolios. And, increased transparency that is making the brokerage process more visible to clients is likely to lead to new payment mechanisms that do not rely exclusively on commissions. Project-based fixed prices should become more common, and a fee per hour worked arrangement, possibly with a bonus or other incentive structure, is likely to become more common in the industry. Is this a negative for brokers? I think not as the potential loss of commission upside is balanced at least somewhat by the security of an income stream.
The third and more disruptive area is a discount brokerage model that focuses on smaller,relatively low margin transactions.
This represents a major change in the underlying business model of a brokerage firm and requires the meshing of new technology and labor force arrangements. How will it be structured? Take a look at the stock and investment brokerages they are already doing it and doing it very well.The technologies and structures necessary for success are becoming more obvious and apparent.
That said, not all firms will want to pursue an explicit discount strategy or even offer it as part of a package for clients. However, a successful discount model should be closely watched by all in the industry because it always has the potential to be adapted to serve higher margin clients.Standardization of documents and processes will be necessary for this model to succeed but it is definitively on it’s way.At first glance the areas most likely to be affected are the tenant rep and project leasing sectors of the industry The investment sales and corporate disposition areas (in the near future at least) will seem less affected.
Evolution Disruption Advancement.
Three advances in technology will disrupt commercial real estate brokerages and hopefully we will evolve.