If there is one thing that most people misunderstand about the commercial property industry, it is that the major real estate brokers only get part of their income from brokering the sale or lease of buildings. While brokering deals is the most outward-facing part of the major firms, with the street signs and offering memorandums and all, it is often not the main revenue driver. In fact, when it comes to most of the biggest commercial real estate firms, recurring revenue from management and occupier services account for more than half of their revenue and and/or their employee base.
While technology’s impact on a broker’s role is important, the changes happening in building and facilities management might be even more important. So, how are some of the biggest brokerages (read: management companies) adapting? Well, there are really only three ways to adapt when it comes to technology: build, buy or partner.
Cushman & Wakefield is one of the major commercial real estate firms that has pursued a partnership strategy aggressively while also developing in-house solutions. I spoke with Steve Quick, Chief Executive of Global Occupier Services about this. He told me, “a diversity of partnerships allows Cushman & Wakefield access to tremendous opportunities to find creative, technologically-driven solutions that apply to our clients and their varied needs.” Cushman & Wakefield has focused on creating an interface that can incorporate various software vendors, a dashboard if you will, in order to give their clients with the ability to choose their specific tech stack. Adam Stanley, Chief Information Officer and Chief Digital Officer, added “there’s no one-size-fits-all solution and many of our clients already have certain platforms that they prefer. We want to leave the options open and depending on the specific case, we can provide our own technology solutions or partner with our network of tech startups and established providers to achieve the best solution.”
JLL seems to primarily lean on a “build or buy” approach. I have spoken with their digital product’s team on a podcast earlier this year. Both Ravi Michandany, their Head of Digital Product Engineering and Vinay Goel, their Chief Product Officer have deep tech experience and have run large teams for the likes of Oracle and Google Maps, respectively. Both of them are running full time dev teams dedicated to creating new products. I asked Vinay and Ravi in our interview if they were building products not only for their brokers but for sale as a tech offering. They told me that while their focus was on creating useful products for their team they did not rule out a large tech play. While JLL’s developers are hard at work it has also made major investments through its $100 million investment fund Spark. They have invested in companies like HqO, Honest Buildings, Disruptive Technologies and Jones plus are an LP of a number of other funds such as MetaProp and Fifthwall. The fund has only made a few investments out of its sizeable arsonal so I would expect to see a lot more activity coming from them soon.
CBRE, the largest commercial brokerage in the world, seems to be pretty balanced between building, buying and partnering. I spoke to Chandra Dhandapani, their Chief Digital & Technology Officer. She explained their equation for determining which path to pursue, “we have a clearly defined strategy as to when we will build our own technology, buy a complete technology solution, or partner with data and technology firms. The first decision we make is whether we need to own a technology solution so we can offer it as a differentiating capability, something that is uniquely CBRE. Once we decide to own a solution, we decide on whether to build or buy. We choose build when we have the expertise and the time to build.” Their host experience platform and enterprise data platform are examples of their build strategy in action.
Buying seems to be an option when they see an opportunity too good to pass up. Chandra continued, “We buy when we want to own a capability, an existing product meets our needs, and we are looking for faster speed to market, our acquisition of Floored and Facility Source are examples of this.” Much like many other large property firms they too are invested in a number of technology investment funds. They do this partially to help them keep tabs on what is happening that might be outside their purview. “We maintain an ecosystem scan function as part of our digital strategy team,” Chandra explained. “This team works with startups and VC firms on a daily basis to stay abreast of the latest technologies and how they could affect our industry.”
Innovation in the industry represents not only a new set of technologies but an entirely different operating landscape. Co-working and flex space have become an undeniable part of any management or occupier strategy. CBRE has introduced Hana, a flexspace solution, and I expect to see something similar from the other top brokerages soon. They are seeing first hand the increasing amount of both supply and demand for co-working and flexible leasing options.
As more and more resources get put into technology for occupiers we might start seeing a new dynamic emerge. The lines between owners, managers, facilities and tenants might not always be the same as they are now. But for now we will have to watch how some of the largest firms in the space are adapting, whether they choose to build, buy or partner.