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Much has been written about disruption in the commercial real estate industry. Millions of dollars have been invested to eliminate our role in a transaction.
So, the question I explore today is “will we be replaced by technology?” My simply opinion is – not in the immediate future. Please indulge me while I share my reasoning.
Reasons why not:
Commercial real estate is not a commodity. Unlike a share of stock – ETrade or Schwab, a hotel room – Priceline, a simple will or LLC – Legal Zoom, or even an auto insurance policy – Geico – no two parcels of commercial real estate are the same. You could have two industrial buildings with similar square footage in the same city that have far differing values. A long term, under-market lease can cause a declination in worth. Boost the electrical service into a building and you can sell for more.
Commercial real estate firms share data differently. We provide information on our listings to data aggregators such as CoStar, Catylist, the Association of Commercial Real Estate, and Loopnet. Subscriptions to these services then bake our listings into a broker searchable format. But, the only consumer facing service is Loopnet. If you’ve ever tried to perform a search in Loopnet – you have quickly become frustrated as commercial searches pale in comparison to residential searches. Residential firms are contractually bound to share their data with a realty board – who then aggregates the data and allows consumers to view and download available information.
Commercial real estate transactions are complex. Standardizing a sale or lease is challenging as there are so many variables to consider – contingency periods, financing, tenancy, city permitting, title issues, tenant improvements, environmental evaluation. Ten-X has done a decent job automating the marketing and execution process of a sale – but still require a listing broker be involved. I am unaware of a service that has automated lease marketing – leases account for approximately 75% of all commercial real estate deals.
Technology has nibbled at the edges. Never have the steps involved in a deal changed. Commercial real estate professionals must source, find, qualify, control, execute, bill and receive payment. Many of the technological gems we see help us “execute” deals or automate our “sourcing” – but don’t seek to extract us. Regardless of technology – ours remains a hyper local industry – where local knowledge is golden.
Billions of dollars are at stake. The company who cracks the code to the walled garden – figures out a way to eliminate brokers – will rake in billions. Costar revolutionized the way in which brokers search for property. Once precluded from doing deals in other locales – because we didn’t have access to the available inventory – we can now trade around the world. Loopnet has give a portal – albeit a small one – to consumers of our listings. Ten-X, formerly Auction.com piloted the disposition of hundreds of distressed or bank owned assets through their auction platform.
Look at our residential counterparts. Many of the tasks residential realtors once provided can now be performed without the assistance of an agent. Not too long ago, you had to call or email to get details on available houses. Now if you are curious about that new sign across the street? Just Google the address or visit Realtor.com and voila – information abounds. A house shopper can practically conduct 100% of the research necessary – analyze the neighborhood, check on the schools, review recently sold properties, see what else is available, tour the interior virtually – before engaging an agent.