In my 30-year career in commercial real estate, I’ve seen all kinds of marketing strategies. In my experience, tenants are often unaware of the key qualities in an advisor that reliably predict success, making them susceptible to selecting the wrong advisor. To achieve optimal office leasing outcomes, occupiers need to engage a service provider who possesses the following critical ingredients:
1. Market intelligence.
3. A full-scope team.
4. Thought leadership/strategy.
Tenants commonly fail to achieve optimal leasing solutions because the market for tenant advisory services is confusing, characterized by a broad spectrum of service providers, not all of whom are well equipped to provide all the essential ingredients necessary to achieve high-quality results. Tenants’ primary source of knowledge is typically commercial brokers. But market participants vary by size, experience, services, focus and many other important ways. The market is hyper-competitive, forcing brokerages to craft marketing narratives that support their strengths and defend against their weaknesses.
For example, a firm that specializes exclusively in tenant representation may promote a message that centers on the importance of “conflict-free” advisory, seeking to build fear that the retention of a full-service firm (one that also has landlord advisory and other services) will result in suboptimal outcomes because the full-service firm is beholden to the landlord and will fail to negotiate effectively for the tenant.
In contrast, the tenant-only firm may avoid discussion of market data and its importance in generating quality outcomes because its business model does not enable it to fully participate in the market. If the tenant-only firm succeeds in making the tenant think it will be exposed to conflict if it hires a full-service firm, the marketing approach is highly effective because, in one fell swoop, the tenant-only firm can eliminate most of its competition.
Not all real estate service firms share the same level of market intelligence. In fact, the spectrum is significant, with small boutique firms generally having the least, and full-service, global firms having the most. Full-service firms that have a robust landlord advisory and capital markets practice enjoy access to significantly more real-time, highly relevant market data. They not only know more about where transactions are being completed; they also have a strong pulse on demand, with specific knowledge of which tenants are interested in which spaces.
You can’t underestimate the importance of capital markets perspective. It’s critical to know an owner’s cost basis, debt and equity structure and the overall objectives of ownership. Finally, an active property management team can help tenant advisors understand operational issues that can greatly impact a tenant’s experience and cost.
Planning is generally underemphasized by the real estate brokerage community. Not all service providers offer resources such as workplace strategy, strategic consulting or labor analytics. Importantly, the concept of planning is somewhat antithetical to the traditional brokerage model, which is designed to “engage and transact.” This is, at least partially, due to the strange and high-risk structure of the tenant brokerage business. Tenant brokers earn their living from leasing commissions that are paid by the landlord (the transactional counterparty) when a transaction is completed. You’d be hard-pressed to invent a compensation model that had less alignment with client interests.
A tenant real estate project can easily entail more than six distinct disciplines, including but not limited to brokerage, legal, design, project management, construction and financial accounting.
To achieve maximum value from these disciplines, they must be coordinated with their delivery properly sequenced. All too often, these services are disconnected and introduced to the project too late, resulting in conflicting agendas and reduced value. Many brokerages are simply not designed to deliver expertise in these critical areas. When firms do have a full complement of services, they are often siloed, causing dysfunctional delivery and alignment.
Good ideas and intelligent thinking matter. The best tenant advisors are thought leaders. Thought leadership is a prerequisite to quality strategic thinking. The thought leader is an advisor who remains curious and constantly evolves their thinking and practice. But thought leaders need data and perspective to thrive.
Relevant experience makes a difference. Experienced teams will be more skilled and better able to deliver quality results. In the context of office leasing, service providers often seek to accentuate industry-specific experience (e.g., “I specialize in law firms”), but what matters most is that your service provider has deep experience negotiating successful leasing outcomes in a specific market geography for comparably sized tenancies.
How They Relate
To achieve the best results, your advisory team must possess all these critical elements. But how are they prioritized, and how do they fit together? Many tenants would be surprised to learn that things like experience and strategy matter less than planning, market intelligence and a full-scope team. Experience and strategy without planning, market intelligence and a full-scope team will fail to deliver optimal results. It’s relatively easy to find real estate advisors with a lot of experience delivering mediocre results using ill-informed strategies.
I would argue that the most critical ingredients are the full-scope team and planning. Market intelligence would be the next most important ingredient, followed by experience and thought leadership/strategy. In this way, my view of the ideal ingredient mix places less emphasis on the characteristics traditionally attributed to “brokerage” — experience and strategy. Instead, the ideal combination calls for a well-rounded, well-informed team that gets all facets of the process right, not just the rental economics.
When contemplating your next office leasing project, consider potential service providers both in terms of how many of the key ingredients they possess and how they will manage these through the project life cycle.