"Corporate Real Estate, To the Barricades"

Who Controls the Market? ... For as long as I can remember, there's been a debate about who controls the market.  Owners, tenants or brokers?  And what about lenders?  I thought about this debate recently when I read a draft paper (not yet published) written by Whitney Walker, who is with IBM Global Services' e-business Strategy and Change Consulting group, on the strategic impact of e-business on corporate real estate.  Here's Walker's personal opinion: "An aggregate decision to normalize processes and information will ultimately unlock value currently trapped by intermediaries in control of the network."  Translation: If corporate real estate directors collectively build a standardized information exchange, they can diminish the role of real estate brokers. Oh-oh.

So I was doubly interested in reading the latest report from the SIOR Educational Foundation, "What Does New Information Technology Make Possible and Under What Conditions Will Changes Occur?" prepared by the Sammuel Zell and Robert Lurie Real Estate Center at the Wharton School of Business.   Download the report at the SIOR web site (a pledge is requested to support the foundation).  Or call Diana Lee at 202-737-1150 to purchase a copy.  The report predicts three "sweeping" changes in the industry.  First, specialized information firms (like CoStar) will thrive because out-sourcing data gathering is cheaper.   Second, new payment mechanisms (aside from commissions) will develop, like project-based fixed prices and per-hour fees.  And third, a discount brokerage model will arise focused on smaller, low margin transactions.  (By coincidence, I spoke recently with just such a firm, currently operating in stealth mode.)

Both reports contain a number of intriguing observations and suppositions that are difficult to summarize.  My personal opinion is that a digitized marketplace (my phrase) will not fundamentally alter the three-pronged dynamic of owner, tenant and broker.   Yes, it will speed the flow of information and decision-making.  But the real estate process is far too complex and idiosyncratic for one player to control it.  As Dana Carvey/George Bush would say, "Not gonna happen."

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--Peter Pike / ppike@pikenet.com