Blockchain is best known as the technology powering cryptocurrencies like Bitcoin and Ethereum. The "block" is digital information stored in the "chain" which is a public database. The blocks on the blockchain are made up of digital pieces of information:
In contrast, the commercial real estate (CRE) industry has historically isolated information that is essential for searching, selecting and negotiating office leases behind private brokerage in-house databases and an imperfect subscription-based industry database. Much like the travel industry prior to the Internet, the commercial real estate industry is extremely inefficient and lacks transparency.
Standard operating procedure for commercial real estate brokers is to keep transaction information secret and centrally controlled for the purpose of creating competitive advantage. There is an intentional lack of transparency on the part of brokers representing landlords that increases the potential for inaccurate market information. But what if the data related to every office lease transaction and every property was held in an open and shared public blockchain database for all involved parties in a transaction?
Technology-driven information transparency is one of the major disruptive forces on the horizon for commercial real estate and office leasing. Globally, venture-backed real estate tech companies raised $14 billion USD in 2019 Q1-Q2, a 309% increase from 2018 Q1-Q2. (Source: CREtech, Mid-Year Report, 2019)
It is not a matter of if, but when. And when that day comes, you can count on an erosion of the lucrative fee structure in office leasing. The market will eventually demand transparency and the removal of information silos built and maintained by commercial real estate brokers and real estate database companies. Today, the huge commissions that brokers earn are largely justified by the existence of these silos.
Eventually, all markets demand transparency and so too will tenants of commercial real estate. As market information becomes more freely accessible the leverage in an office leasing transaction will shift from listing brokers and landlords to tenants and tenant representatives. This new market landscape will empower tenants to demand more value from their broker than just sharing proprietary market data.
That said, an office leasing transaction is much more complex than booking travel online. No two deal terms are the same just as no two spaces with the same square footage are the same just as no two landlords or buildings are the same.
So, there will be a role for a middleman in office leasing, but it won’t be about sharing lease comps or asking rents. It will be about adding quality, value and services to the transaction. Brokers clinging to legacy business models and fee structures are likely to feel like travel agents in the '90s standing on the wrong set of tracks when the Internet train passed by.
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