Commercial Real Estate

How Technology Impacts The Commercial Real Estate Market

Technology has an impact on commercial real estate

Automation is an important tool of capitalism. Its overall aim is to reduce outgoings as much as possible, thereby increasing profits. Any business’ greatest expense is its workforce, which means that if cuts have to be made, this is where employers take a look first. Naturally, the workforce is also a business’ greatest asset, as nothing can be delivered without it. Hence, what companies now try to do is find ways to replace the human workforce with automated systems as much as possible. And it is working. It is known as digital disruption and it impacts every element of society, including commercial real estate.

The real estate industry is already feeling the effects, as technological advances are rapidly disrupting the conventional ways that people live, work and shop. These advances will have a profound impact on all real estate asset classes, from office buildings to shopping centres to warehouses. In an age of disruption, no real estate is immune.

So will commercial real estate brokers find themselves obsolete, replaced complete by technology? Eventually yes, but it looks like there will continue to be a need for human intervention in the immediate future. Perhaps a good place to see this in action is across Orange County, where modern technology is often accepted with open arms.

Why Tech May Not Be Able to Replace the Broker

Commercial real estate brokers will tell you that each parcel is different. Perhaps they are working on two retail properties in the same city, with the same square footage, yet the value would be very different. This is in part due to the fact that commercial leases are negotiated on by people, which means agreements always end up being different.

There’s no standard agreement for commercial leases. In fact, negotiating the terms of commercial leases is usually expected. Depending on the state of the commercial real estate market, a business may be able to obtain significant concessions from a landlord. A property owner with a largely vacant business park, for example, will most likely make allowances.

There are numerous factors that can make one property seemingly worth more (or less) than another. Perhaps it has been leased below value for a long time due to a special arrangement between the landlord and the tenant. Or perhaps one of the two properties has recently improved its plumbing system. Those are all unique factors that influence price points.

Furthermore, the way commercial real estate businesses, not just in Orange County but across the nation, share their data is unique each time. This is because there are different services to choose from, most of which are on a paid subscription basis and most of which are not customer facing, which means each broker makes different decisions. The only reasonably constant service that brokers can sign up to, and also one of the only customer-facing ones, is LoopNet.

LoopNet is the leading mobile and online real estate marketplace that connects tenants and investors to commercial real estate available for sale and lease.

LoopNet is an excellent service, which is why it is one of the leading providers in the country. However, the listings are still quite minimal, particularly if they are compared to residential listings. The reason for this is that all residential real estate brokers must share their data by law with realty boards that aggregate all of the available properties, so consumers never have to miss out on a property.

Another important reason why brokers are unlikely to be replaced by tech any time soon is because the transactions involved in this sector are hugely complex. For years, attempts have been made at standardizing the way a lease or sale is created, but this is seemingly impossible. With variables such as environmental evaluation, tenant improvements, title issues, city permitting, tenancy, financing, contingency periods, and more, it seems impossible to automate everything. That said, a good attempt has been made by Ten-X, which was able to automate the marketing of a sale and its execution, but continues to require listing brokers to do their work.

Ten-X has completely revolutionized real estate, empowering people to safely and easily buy and sell residential and commercial property whenever they want to and from wherever they happen to be. It’s the only real estate platform that allows buyers, sellers, and real estate professionals to search, list and transact properties completely online.

Commercial real estate transactions are related to leases in 75% of cases, and there are currently no services that have been able to automate even the marketing element of this in full.

Despite efforts to use technology to replace human transactions, commercial real estate deals have to follow a number of steps that tech simply cannot perform at this point in time. These steps are sourcing, locating, qualifying, controlling, creating, and billing a deal, after which payment is received. Today, technology seems to only be able to take over some of those steps, but not all of them. Perhaps this is because there is one thing that technology will never be able to have, and that is an instinct about the local market.

Why Tech May Soon Replace the Broker

At the same time, it is important to understand that overarching businesses want to cut out the middleman. The middleman – the broker – costs billions overall, and there are substantial savings that can be made by eliminating that person in the equation. Sooner or later, some developer will be able to figure out how to replace brokers. Unfortunately for the broker, it feels like that the time has almost arrived. CoStar, for instance, has made it possible for deals to be completed globally. LoopNet has created a consumer portal and Ten-X allows for auctions of distressed properties without external involvement.

One quick look at how the residential real estate market is moving, and it becomes clear that the commercial real estate market will soon follow suit. Almost every element of the residential deal has now been automated and the agent workforce is dwindling as there is less need for their skills. People no longer have to speak to realtors directly about properties because they can simply go online.

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