The Brokerage Business is Changing

Whether our clients know it or not, they need a different approach to problem solving.  That’s why the brokerage industry is changing its business model.  We have to be stronger, smarter and better aligned with our clients to have any chance of converting the limited number of opportunities out there.

Commercial real estate brokerage is a solutions-based business.   It used to be that clients identified needs or inefficiencies in their businesses and then asked brokers to find a real estate solution that either makes or saves money.  In normal times, deals came together quickly and all interests were served.

But times are different, and we won’t return to the peak of the recent market upswing for many years, if ever.  The underlying problems in business today are profound, and real estate as an industry – in its weakened condition – can’t always deliver clear and straightforward answers.  The best way to effectively compete is to think more advisory, expand our knowledge base and deepen our benches; we can’t space-jockey deals anymore; we need to know the “why” behind every client requirement and not just the where.

Change is here.

All industries over time experience periods of expansion and contraction; the brokerage industry right now is in change mode, posting a bit of both.  Large, national and global-platform brokerage houses are migrating to a predominantly corporate services delivery system, chasing business at the C-Suite and not the mean street.  Local boutique firms are washing out, merging with other like-minded firms or aligning with bigger, stronger partners.  With a few expectations, the independent “network” model is fizzling because it cannot truly deliver a consistent level of service market-to-market, and it lacks a central repository of intellectual capital and shared resources that member firms can draw from.

The transformation of brokerage nationally and here in Chicago is already underway.  The former Epic Realty Partners became Newmark Knight Frank, the former GVA principals joined CTK, Colliers underwent a schism, Canada-based Avison Young opened an office here, and St. Louis-based Cassidy Turley is circling.  In other markets around the country, local firms left the ONCOR and GVA networks, and Grubb and Ellis recently announced that it was for sale. NAI is still very strong in most markets.

The change is being driven in part by corporate space users requiring a higher level of services, and local users needing a more consultative approach to help them make critical decisions.  Common sense tells us that if more brokers are pursuing fewer opportunities, the brokers with the best process, the most resources, the best talent pool and the best pitch are most likely to prevail.  We should all want to be part of that group.

Three Ways to Improve.

Most of the changes occurring seem to center around three key activities: making more resources available to clients; raising the skill and intellectual levels of brokers; and “adding to the bench” through mergers, recruiting, and inviting young brokers back in to the business.  These survival strategies impact corporate and local market clients because they benefit as we grow stronger.

All brokers should consider reframing their client service model to become more advisory.  This begins by respectfully challenging the assumptions that produce the client requirement and looking beyond real estate to determine what dynamic is truly driving the need.  Is it overall area capacity, or could it be supply-chain based?  While it may be counter-intuitive to our livelihoods, the solution is often not space-based but rather process-driven or founded in a labor, production or transportation realm. By asking the right questions, we can better assist the client in thoroughly thinking through the challenge on our way to unearthing the best possible operational and economic solution.

If brokers don’t have consulting, supply chain, target area cost modeling, design, construction, management or investment expertise on their team or in the firm, then align with a third party who does. The market is favoring the full-service model over segmentation and specialization.  Clients seem to be migrating toward brokerage firms with broad service offerings because decisions today require evaluation and analysis over multiple sectors of the business.  Bringing to the table experts in many areas will enable brokers to win more assignments than just being a specialist in one area.

Surrounding yourself with resources is also a way to achieve the second key success activity: raising the skill and intellectual level of brokers. In this job-loss era, the middle-manager workforce has been reduced and real estate and strategic decisions are being made at a higher corporate level by big-picture executives.  More secure in their careers and less protective of their territories, these executives require greater intellectual and advisory contribution from their brokers.  They seek results and process-driven professionals, not just compliant task executors.  To serve this key constituency, we need to be better informed about our industry so we can tell them what needs to be done.

The national platform firms organize their industrial teams into specialty practice groups, bringing forward discernable skill sets to address client needs.  Members of these practice groups are compelled to become experts in their fields.  It’s important to align people with similar skills and experiences into teams to support a specific segment of the marketplace – manufacturing, logistics/distribution, life sciences, clean/food, technology and alternative energy.  We’re taking Supply Chain and Six Sigma course work, advancing toward LEED certification, participating in TMA and IMA workshops, completing CCIM credits and committing to becoming experts in many sectors of the industry.

The final initiative to consider is bench strength.  Because there are fewer deals circulating in the market, finding deals before they find someone else is critical to growing market share.  Our agency clients need us to return to basic blocking and tackling, so we need a fresh stable of deal-finders eager to work the phones and walk in doors.  As a hiring professional, I am impressed by the quality of young candidates willing to pay dues in exchange for a commercial brokerage career.  A platform comprised of only senior level producers makes money today, but it will be made weaker in the future without a feeder team.

Diversity in thought and experience gives you intellectual capital and an army of performers equipped to handle most client challenges.    A good number of free agents have recently switched teams; earning potential drives the decision long-term, but finding the right offering of resources, support, competitiveness and upward trajectory is the immediate trigger for change.  Now that the economy is showing some stability and resilience, brokers looking for a better mouse trap finally have the courage and confidence to make the leap.

Change tracks on a “J” curve – there is an immediate drop off, but then a rapid ascension that if properly executed, surpasses the stagnation of the change event.  Now is a good time for brokers to rethink their individual methods of doing business, because we have time, activity is still weak and clients need stronger, smarter brokers. Consider becoming a better version of yourself now, so that you are fully unpacked and ready to go when our real estate brokerage lives are good again.  credit(j. coleman ,nkf)