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CoStar’s Love-Hate Relationship With the Commercial Real Estate Industry

3 Essential Reads

CoStar Group flaunts corporate social responsibility, dismisses employee criticism

The commercial real estate industry has long had a love-hate relationship with CoStar and vice-versa. Perceived as a necessary research tool for many in the business, the high price is usually what irks people the most. CoStar can run users thousands of dollars per month with variable fees based on service and activity level. But the cost of the subscription is not the only reason the company has raised the ire of so many in the industry. The company’s property database is updated by a team of researchers who call by telephone to get building info and drive a fleet of vehicles around cities taking pictures of buildings. Some brokers don’t like giving CoStar their data, or are generally distrusting of the validity of the information on the site. Owners often prefer to use their own images to represent their properties in the database.

Recently the most vocal critics of the company are not its customers but former employees. CoStar has made headlines for a so-called toxic corporate culture. Employees complain about the monitoring of remote workers, high turnover, and the CEO’s erratic behavior. It is amid this backdrop that CoStar just released a report promoting its social responsibility. In it, the company touts environmentally friendly measures like electric fleet vehicles, socially responsible activities like diversity and inclusion, and workplace training and wellness. With thousands of employees, the report claims that the company fosters “a collaborative and healthy work environment.” While that may all be true from management’s perspective, when an organization grows to dominate an industry in the way CoStar has, it makes itself an easy target. How it responds to negative sentiment will impact not only PropTech, but the commercial property industry as a whole.

Here is a roundup of our recent CoStar coverage:

The CoStar Group has been the go-to source for commercial real estate data for decades now. They have been able to amass proprietary property data thanks to an army of employees and have stomped out any competition with legal action. The $25 billion dollar company is now battling what seems to be growing discontent from former employees.

First, an Instagram account run by a disgruntled former employee popped up. The account uses memes, satirical images with captions that are one of the weapons of choice in today’s social media conflicts. CoStar’s CEO Andy Florence had this to say about the page in a memo: “He is neither credible nor informed. Truth, accuracy and perspective are irrelevant to his effort to malign those that work at CoStar.

CoStar Profits up, But Demand for Apartment Ads Sinks

CoStar Group CEO Andy Florance (Getty)

CoStar Group’s profits ticked up in the third quarter as revenue returned to a double-digit growth rate.

However, with apartment hunting pushing vacancy rates to historic lows, demand for apartment advertising has weakened, generating headwinds for the company’s online market platform Apartments.com, the company said.

“This spike in occupancy levels is unprecedented,” CEO Andy Florance said on an earnings call. “I believe it begins to reconcile in the next two quarters. It could be one to four quarters, but I do not believe sophisticated operators of apartment communities are going to leave their occupancy levels so high and miss an opportunity to churn rents.”

Information asymmetry is a term that gets used a lot in economics. It means that one party in a transaction has more information or better information than the other party—a common occurrence. The imbalance creates inefficient markets, moral hazards, and more monopolies. There are few industries that are as rife with informational asymmetry than commercial real estate. Practically every sector in commercial real estate operates with some form of information asymmetry, hiding the cost of concessions, the price of rent, level of occupancy, or tenant improvement allowances. Unlike the market for stocks and bonds, information in the world of commercial real estate isn’t easy to come by, more often shared via grapevine than publicly disbursed, creating obstacles brokers and deal makers spend far too much time dealing with. Understanding how information asymmetry impacts the real estate sector can help brokers, buyers, tenants, and landlords alike. 

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