The New Broker Order
I want you to visualize something. Picture an industry where extraordinarily lucrative careers can be had, where the barrier to entry for new talent is much lower than the other classic business roles like consulting and banking. This is a field that rewards participants not just for their analytical skills and hustle but for their charisma and networking chops. It’s a niche where competition plays out not just between firms but also between individual professionals, and where a wave of new technology is reshaping the way jobs are performed from the bottom of the field to the top. Oh yeah, and most of the top performers are retiring. Does this sound exciting to you? Well, then maybe it is time to become a commercial broker.
If you take my advice and join this field, don’t blink. Things are changing, and a new order of winners and losers is emerging from the scorched fields of what came before. Before you jump headfirst into this new career path, you’d best learn who’s winning, who’s losing, and why the industry is increasingly emphasizing consultative approaches and rewarding individual stars regardless of their firm. So buckle up and let’s get down to the business of brokerage.
There was once a day when brokers were able to stand out based on the provision of market and property data. Investors, landlords and occupiers came to these professionals because no one else had the type of information they could offer. It was the 80s and 90s. Gordon Gekko was still in vogue and the internet wasn’t a thing yet. If you wanted a space you needed to talk to an expert, whether your goal was investment or finding a spot for your widget manufacturing concern.
This was the way of the world for a long time but it was not to last. By the early 2000s, the internet began to offer anyone interested in real estate a plethora of information on fair sales pricing, cap rates, and trends. Soon enough, the brokerages and big service firms started publishing periodic market reports. And once public listing sites made properties as small as the corner store or as big as a skyscraper available for inquiry from anyone, the heart of the broker’s value proposition began to change.
By the time I became a broker in 2019, data was available from so many sources that the flaws in banking your reputation on simple data sharing had been made painfully obvious. Many investment shops now have access to powerful data tools that, while not always completely accurate, are certainly enough to provide general awareness of a market, its properties, and its trends. With the most productive brokers in any market easy to find online, any investor or occupier could make a few phone calls and have market opinions, pricing guidance, and cap rates from a half dozen different companies in a day and a half.
Under pressure
Commoditization of real estate data is the biggest single factor contributing to what I am calling the “New Broker Order.” According to the research and advisory firm Gartner, “The greater the size of the market and the demand for a resource, the greater the competitive pressure on price and, hence, the increase in commoditization of the resource.” The commercial real estate market is huge and commercial properties are certainly an asset in high demand. So it makes sense that data commoditization has exploded in recent years. The challenge for brokers is that commoditization has made data cheaper. Commodities, like gold, rubber, or even data, have a set price. An ounce of gold here is the same as an ounce of gold there, just like the CoStar NYC apartment market report downloaded by a top broker in Manhattan is going to be the same as the one grabbed by the newbie in Queens.
But the news is not all bad for commercial real estate brokers; when one side of a see-saw goes down the other goes up. The deluge of data, often with inconsistent quality standards, has opened up new avenues to providing value for creative brokerage professionals. In their 2019 Emerging Trends in Real Estate report, PwC wrote that “As data have become commoditized (and cheaper), real estate financial markets have become more efficient. Competition is sharper. There is little ‘low-hanging fruit’ left.” In terms of brokerage, this means that much of the easy data to find, like listings, no longer represent a lot of value. But while this creates challenges, It also creates an opportunity for experienced brokers to bring in more nuanced data for more sophisticated analysis.
According to the California-based commercial brokerage Lee & Associates Orange, “Transforming those disparate pieces of information into one grand composition that translates into personalized service providing clients with the tools necessary to make timely, cost-effective decisions is still the domain of the local, knowledgeable commercial real estate professional.” Pay special attention to the word “personalized” here. While information on markets in general, property types as a whole, and even specific properties is now cheaper than ever, pairing that information with advice tailored to each investor’s goals, skills, and organizations, is still difficult to come by.
Industry leaders have seen this coming for a while. Doug Frye, past global president and CEO of Colliers International, said that “traditional property data is being commoditized every day, with data accessible and available to everyone. The value we provide to clients is delivering true market insights that are personalized to their specific industry, business and employees.” We can see, then, that the broker’s relationship with data is evolving.
This value proposition is becoming much closer to that offered by the traditional management consultant than ever before. The market intelligence company CB Insights recently did a synopsis of the management consulting value proposition, and here are the takeaways:
Information: The underlying facts and data surrounding an industry or market
Expertise: The perspective of an experienced advisor
Insight: The analysis and actionable intelligence generated by the combination of expertise and information
Execution: The practical logistical framework, action steps, and timelines required to implement the insights
That sounds a little similar to what lots of brokers offer, doesn’t it? Of course, the end result for brokers is typically a property transaction, whether sale or lease. But does it have to be that way?
Station to station
According to Scott Harmon, CEO of Swivel, a company that provides 3D tour technology for landlords looking to fill space, there are other business models out there brokers should consider. “For tenant rep brokers, it used to be that you were the only game in town and customers couldn’t find space without you. But now there is a risk that tenants could cut you out. Brokers who specialize in tenant rep services will need to get better at marketing what their real value is: expertise and consultative advice.” These are things that don’t have as inherent a price tag as a straightforward property transaction. Scott added that “Perhaps they could leverage their strength in offering strategy expertise and sell their services for a consulting fee.” While some brokers might think that decreasing their emphasis on commission-based work is a bad thing, they should focus on the positive: this is an opportunity to build more lucrative businesses by diversifying income streams.
Other experts who frequently work with brokers echoed parts of Scott’s perspective. According to Michael Griffin, Managing Director of Broker Solutions at Lightbox, a provider of commercial real estate data and marketing technology, “the guys that are the best do both transaction and lifecycle advisory,” providing input and strategy for clients’ property needs with a more holistic, whole-business perspective. This kind of perspective is increasingly important in a 24-hour business world since any single property transaction is only one part of a company’s overall real estate strategy, that real estate strategy is only one part of a complete business, and even the biggest business is only one part of a CEO’s life. Each step on this staircase is important to the success of the next, but treating property transactions in isolation doesn’t make much sense. Michael added that “In industrial, people still want to talk to brokers. Incoming calls are not about whether they are looking to buy or lease, it is now more advisory in nature. How is your business doing, family, and that kind of thing.” Brokers should consider this process of communication and even collaboration as an end in and of itself, and not just part of the customer journey to a property transaction.
Anyway, anyhow, anywhere
Data commoditization is transforming the heart and soul of what brokerage is all about. So who is winning and who is losing? Is it still just whoever can make the most phone calls and set up the most lunch meetings (or Zoom calls). Far be it for me to say that this strategy doesn’t work anymore, but there is a difference between working well enough and exceeding expectations.
The most successful brokers focus on developing a strong brand image surrounding a particular niche, as well as making a generalized push into thought leadership. With data commoditization comes an increasing emphasis on deep, niche knowledge of the sort that big databases may not be able to provide. That niche doesn’t necessarily need to be a specific property sub-subtype or size. Instead, it could be geographic.
Ben Shapiro is Vice Chairman at Newmark. He is a high-performing office broker based in New York City as well as a technology expert within the company, and he said that “Drilling down on specialization is less important than finding an area where the swimming lanes are wide open. If you were the first broker to do investment sales in Brooklyn seven years ago, you’re doing great right now. Find something where you think you can become an expert but more so that the competition is less, but the opportunity is still great.” COVID-19 has deep implications here. The rise of secondary and tertiary markets as people leave the biggest cities should inform where prospective brokers might want to look.
The pandemic’s impacts have also served as an impetus for many of these new strategies, as brokers seek to supplant the old-school, in-person methods of connecting with clients and prospects. According to Jennifer Frisk, Senior Managing Director with Newmark, “When the outbreak hit a year ago, everyone was given a chance to be or do things differently. We couldn’t do all the things we used to do from a marketing standpoint. In LA we look to the social media platforms, primarily LinkedIn, YouTube, and Instagram, and we use those to drive our messaging and touchpoints.” Interacting as an individual on these platforms, even seemingly unfitting ones like Instagram, can be a fantastic way to let personality shine through in an industry traditionally dominated by giant companies.
Brokers can get even more creative than just pushing out updates and slideshows on their social channels. The most media-minded in the industry can develop their own deep libraries of content that showcase both personality and expertise. Jennifer from Newmark added that “We developed a weekly episodic series called Three Good Minutes, which is CRE-centered but we talk about everything. This social distancing brought on by the outbreak has made us all a little more connected in a real and holistic way. Our work and personal lives have blended together.”
Another solution which some brokers have taken is launching their own webinar series. This allows the broker to achieve several goals: first, it presents an opportunity to showcase specific, advanced, niche knowledge to an audience that self-selected attendance based on interest in the subject. Since Zoom calls and videoconferencing became the way much of the real estate world started operating in early 2020, Zoom fatigue has become a noted phenomenon that might prevent some people from joining an otherwise fascinating webinar. But it isn’t even necessary for your audience to catch the webinar itself for this strategy to have marketing value. Simply sharing advertisements and outreach pertaining to a thought leadership webinar can reinforce the broker’s brand in the minds of contacts and connections.
Changes
The future of brokerage will be determined by people who can master emergent approaches like lifecycle consulting and non-traditional marketing approaches. It will also be guided by new talent that comes in with fresh new perspectives and skill sets in fields like data and technology. According to Rawley Nielsen, President of Investment Sales at Colliers International in Salt Lake City, “In this industry where the older generation tends to operate like lone wolves, really emphasizing just putting your head down and working and grinding, sometimes they will see technologies as the Millennial generation trying to cheat or slack off, so I think there is a knowledge gap. It will take work from the younger generation to communicate that this isn’t laziness, it’s just more efficient.” For some young talent, the fruits of their labors, and the CoStar Power Broker awards lining their offices, might be all the proof that they need.
The big companies tend to represent a value to new brokers beyond just having a place to hang their licenses. There are a few reasons for this. One, the established firms help overcome high upfront costs like a CoStar subscription and marketing support. Two, working as a junior broker within an established team provides substantial and structured training and access to mentors, as well as a whiff of respectability that working at a smaller shop might not confer. But it is becoming less necessary to look to the CBREs of the world for these things. Data just keeps on getting cheaper, and even a CoStar license can be covered with change to spare by just a couple of small transactions. Training is harder to replace, but the wave of major brokers leaving the big firms to start their own shops would be a great place to look. The combination of a market-leading elder broker who has striven out on his own and a younger, tech-enabled upstart could be difficult to beat.
Commercial brokerage as an industry is all about properties, but it is increasingly also about everything else that goes on around them. The portfolio decisions, financial decision-making, and even personal life factors that go into space and investment decisions are all interrelated. They’re also all best communicated with through different methods. You wouldn’t make a PowerPoint to advise a friend on a life decision, and you wouldn’t send a gag birthday card to a prospective client you don’t know well. By leveraging the different digital communication and thought leadership strategies that social media, webinars, and other tools present, brokers can future-proof their businesses while increasing their profitability for the long term.