The world of commercial real estate brokerages is in a unique position. On the one hand, some things are still as they’ve always been. The relationship centricity of the business remains, and the value of local information is still there. On the other hand, the transformational force of technology means that much of business is not as usual. How do those all-important relationships get formed? How do brokers gather the local information and amass the expertise that sets them apart as leasing and investment advisors?
The reality is that even if the way business gets done is much the same, the processes and workflows that go into it are rapidly evolving. And the dynamic between owners and brokers, and amongst brokers of different sizes and specialties, are morphing as well.
In our newest research report, produced with Biproxi and now available for free, we focus on the investment sales middle market: the middle 50% of the market that is big enough to attract substantial attention from investors while being smaller than the portfolio sales and megadeals that the biggest offices and real estate investment bankers trade in. Across all property types, the middle market is diverse, with investors ranging from funds down to mom and pop operators, and properties ranging in size from $1 million to $25 million. While the biggest players in this niche are familiar names like Colliers and Cushman & Wakefield, according to Biproxi, there is also a long tail of brokerage firms that represent a big chunk of the market as well.
Whether we’re talking about these smaller firms like Century 21 or KW Commercial, or simply newer, less-established teams at existing brokerage companies, the question at the core of the business is simply: How can upstarts hope to compete with established teams and firms with seemingly limitless resources?
Consider the factors that differentiate a small, new team fighting for market share in a hyperlocal environment. Perhaps this team specializes in one or two submarkets in a big city, maybe a sub-niche, like apartments only under fifty units, or perhaps the entirety of one smaller city. Now compare that team to a bigger one, perhaps responsible for an entire region and a complete property type: apartments, including student and senior housing, throughout the Mid-Atlantic region. This second team will almost certainly have greater corporate support, with more expensive tech tools and the support of more admins and transaction associates to close deals.
The smaller team’s focus and smaller scope offers it a big advantage, though: deep local expertise. A big team, relying on a suite of software to provide research and analysis on a region may be able to capture the trendlines, transactions, and big-picture factors affecting each market. However, the local team, if it has hustle, will know the real details like where real people want to be or whether a given shopping center has a good reputation. These details may not mean as much to a core office transaction for institutional clients, but for smaller or less-stable properties, with owners who want to add value, they might be the difference between sinking and swimming.
There’s another opportunity that can help more locally-bounded teams stand out, too—offering a client-first, instead of product-first, approach. According to Michael Fay, principal and managing director for Avison Young’s Miami office, as well as chairman of the firm’s capital markets executive committee, “We’re starting to find that a lot of the private client groups that we deal with don’t mind drifting between, say, office and industrial or industrial and retail. So you have to be versatile in what you’re doing.” This makes for an interesting irony. Geographic specialization is critical for smaller teams and firms, but product-type choice favors the diversified.
Mr. Fay himself focuses on a couple of property types, and his team covers other areas, like multifamily. His business is already established and highly-successful, though. For the upstarts, some creative networking might be in order. What should a talented office broker at a small shop do to expand his team’s ability to handle a diverse array of properties? The answer comes back to a skill at the core of the investment sales competency list—networking. Three or four small firms, each with one or two great brokers, is inefficient and perhaps not that profitable. One firm with a unified team of segment leaders, however, is a force to be reckoned with. Assembling such a team may be easier said than done, reliant on the charisma, egos, and even camaraderie of a group of erstwhile competitors. But for long tail firms hoping to carve out a niche between the turf wars of CBRE and their ilk, it might be just the recipe needed for success.