WASHINGTON, D.C. — If money talks, then the commercial real estate brokerage industry must be screaming. In the first phase of an extensive study, the Society of Industrial and Office Realtors (SIOR) determined that buying, selling and leasing industrial and office properties generates gross commissions of $10.4 to $13.3 billion, with a midpoint in the range of $11.8 billion.
Based on the $11.8 billion midpoint, the present value of brokerage industry profits for office and industrial properties in the United States ranges from $5.7 billion to $7.1 billion, according to the SIOR study. The range depends on whether profits are estimated as a multiple of four- or five- time earnings before interest, taxes, and depreciation and amortization.
The SIOR's Education Foundation is conducting the three-phase study to determine the brokerage industry's impact on commercial real estate and to look at how technology will affect brokerage in the future. Performing the study are professors Joseph Gyourko and Asuka Nakahara, director and associate director, respectively, of the Zell/Lurie Real Estate Center at The Wharton School of the University of Pennsylvania.
Highlights of the first phase of the study: “For us, the question is how the Internet might lead to different process improvements for the leasing, selling and managing of space,” the study reads. “Brokers appear to be important repositories and conduits of information and knowledge that are not easily replaceable. Ultimately, the issue comes down to whether anyone, new or existing, can exploit new information technology to provide the repository of information and knowledge and be a flexible conduit of information — all more cheaply than can be done by the current brokerage community.”
The second phase of the study will survey online brokerage and examine e-commerce brokerage strategies. The third phase will look at how brokerage will be affected by technology.
“The recent boom and bust of e-commerce companies has lulled many old economy firms into thinking that they can thrive without using high-tech and Web-based tools: Wrong approach,” said Stephen F. Blau, SIOR, president of the SIOR and vice president of Newtown, Pa.-based GMH Capital Partners. “The right approach is for the commercial real estate industry to determine how it can use technology-based efficiencies to hold down the cost of the commercial real estate transaction and improve the delivery of commercial real estate services to the end user — the owner, the investor and the tenant.”
Gyourko and Nakahara, The Wharton School professors, also used the first phase to set industry benchmarks in order to better determine technology's future impact.
“The goal is to separate myth from reality,” Gyourko said. “No one has done academic research like this before. As a result, the industry has been subject to some pretty wild statements about commercial brokerage, the Internet and the future. Our aim is to replace hearsay with solid evidence.”