The ongoing COVID-19 pandemic has severely affected the global commercial real estate sector. With offices adopting remote working approaches and people moving from major metro cities to suburbs and physical distancing protocols, the real estate sector is looking at major uncertainty in 2021. As a result, the commercial real estate brokerage business has also been affected by the rising patterns of unpredictability in the sector. Now as the social distancing restrictions are being lifted, commercial property brokers are expecting to make the sales and return to normalcy. However, real estate experts believe that changes in the buyers’ behavioral patterns will be at the axis of the modus operandi of brokerage. Hence, the future of commercial real estate brokerage in a post-pandemic world awaits major upheavals and transformations.
Who is a commercial real estate broker?
A broker is a middleman who works with buyers and sellers of commercial real estate to buy, lease, sell or rent properties. These properties are commercial in nature such as office, industrial, multifamily, etc. A broker acts as a middleman between a buyer, a seller, or a tenant. He/She ensures that their client receives the best terms, conditions, and value on their investment transaction. Further, a commercial real estate broker is an expert in tax and zoning laws. Additionally, a broker extracts market data, manages the property, analyzes the financial aspects, etc. A commercial real estate broker may work independently or represent a commercial real estate brokerage firm.
Role of a commercial real estate broker
1. Acquisitions
Commercial real estate brokers assist buyers in identifying the perfect property. Before the buyers purchase a particular property, these brokers perform an extensive search on member-only property listing platforms. They find and compare the prices of various properties. Then, they zero in on the ones that fit the requirements of their clients. Further, brokers also negotiate the optimal purchase price and terms for their clients.
2. Leasing transactions
A commercial broker also acts as a middleman between landlords and tenants regarding the lease of commercial real estate space. Moreover, commercial brokers can find qualified tenants and quality space. They can also establish lease rates, and negotiate lease terms for either party.
3. Listing Agent
As a listing agent, a broker negotiates the terms of a transaction in the best interests of their client. When a broker works for a landlord/owner, he/she finds the appropriate and qualified tenants or buyers. When they are successful in executing a sale, the landlord/owner pays them a commission. It is typically 3% or 6% of the final sale price or the total rent for the lease term.
4. Tenant Representation
Besides landlords/owners, tenants also reach out to brokers to find them suitable properties. As a tenant representative, the broker strives to get find the best space with an attractive deal for their client. With their negotiating capabilities, they establish the most favorable lease terms and rental rates for their clients. Moreover, the brokers also ensure that there are no hidden charges or clauses and that the tenant does not have to bear any additional financial responsibilities.
5. Dispositions
Besides their assistance in purchasing a property, commercial brokers also help their clients to sell their commercial real estate assets. Further, commercial brokers perform extensive market analysis to decide on an optimal listing price. Moreover, the brokers employ advanced marketing strategies to find qualified buyers and negotiate sale terms to secure the highest returns.
What is the future of commercial real estate brokerage after the COVID-19 pandemic?
Before the devastating events of the COVID-19 pandemic, commercial brokerage was heavily reliant on broker networks and physical interactions with clients. Moreover, physical property tours and paperwork were the norms of the business.
However, due to the ongoing pandemic, commercial real estate brokerage is now heavily relying on digital apparatus to continue its operations. With COVID-19 engulfing the property business in uncertainty, it’s time for commercial property brokers to upskill their teams and adopt technological innovations to comply with the government mandates and consumer behavioral changes and navigate through the uncharted territory of the ‘new normal’.
Upcoming trends in commercial real estate
The pandemic has given rise to several radical patterns in property behaviors in commercial real estate. While the hospitality and retail sectors suffered huge losses, industrial properties, multifamily, and office spaces are starting to recover.
Across the several commercial real estate asset classes, industrial property remained the most resilient with the rise in the growth of e-commerce. As a result, wholesalers, retailers, and third-party logistics companies will require more spaces for warehouses, last-mile distribution centers, cold storage, etc in core urban locations. Therefore, commercial real estate brokers will witness a spike in the demand for industrial properties. Tenants and buyers will prefer reusing retail properties for industrial occupiers and Class B properties are also experiencing rent growth, low vacancies, and renewal rates.
However, other commercial real estate asset classes like multifamily, office, retail, and hospitality are looking at slow rates of recovery in 2021. Hence, commercial real estate brokers might not entirely experience huge opportunities in the transactions of such properties. In the case of Multifamily properties, there are fewer chances of market recovery to pre-Covid levels till early 2022. Moreover, the large-scale exodus to quiet suburbs from urban cities has reported significant profits from increased rental rates. Office properties are observing a similar phenomenon.
With a decline in the demand for office properties due to remote working policies, various corporate companies will shift their headquarters to suburban centers. This is due to the need for more office space at low rental rates and employee migration patterns. Hence, commercial brokers must adopt these trends to thrive in their business. Moreover, with the physical distancing norms, commercial brokers should digitally innovate their operations.
Will technology shape the future of commercial real estate brokerage after the COVID-19 pandemic?
From a commercial real estate perspective, lockdowns and travel restrictions have eliminated property viewings and commercial brokers all around the world are looking for alternative options to adjust to these ever-changing circumstances.
- Virtual home tours:
Virtual home tours in particular have been gaining popularity among the customer of commercial real estate. The ability to view properties from the comfort and safety of their homes has been a major selling point. Hence, commercial real estate brokers have begun using professional gadgets like drones to provide an overall view of the property from every perspective. Drone cameras can capture multiple still shots and high-quality videos of the property, and overhead map images, with even 360-degree panoramas. Hence, it is a perfect replacement for physical viewings which is majorly difficult in these trying times. However, even before the pandemic, buyers preferred virtual tours more than in-person viewings. According to Realtor’s 2019 Home Buyers and Sellers Generational Report, 46 percent of all buyers and 48 percent of buyers aged 39 to 63 said virtual home tours are “very useful” in the property buying process.
Virtual tours further include:
- Pre-recorded walkthrough video: although not interactive in nature, this still provides interested buyers and investors with an in-depth perspective of the layout and spatial dimensions of the property. These pre-recorded videos can be fairly comprehensive as the brokers along with the photographer and videographer walk through the entire property. Further, brokers can also add descriptive texts wherever required.
- 360° virtual tours: These also allow buyers to explore a property, zoom in on an area, and truly understand the overall floor plan and layout of the property.
- Live, video-chat tours: This is the most interactive property viewing option among all three. Here, a broker can tour the entire property while video chatting with their clients on their phones.
- Digitized floor plans: 3D floor plans help in creating the required floor plans according to a buyer’s choice. These digitized plans will provide a realistic rendering of what the finished space will look like if it’s not already so in move-in condition.
After a buyer is satisfied with the property’s condition and plans, brokers, with the help of landlords, can seal the deal for acquisition. As a result, the buyers will be able to communicate, locate and research property choices digitally from the comfort of their homes.
Moving forward, tools like Augmented Reality and virtual tours will be the future of commercial real estate property viewings. Due to their sheer convenience and cost-friendliness, online property tours will likely be a standard norm for a more dynamic property buying experience even after the pandemic.
- Online Branding
Before the advent of technology in their operations, commercial real estate brokers depended on their personal networks and social interactions with lawyers, agents, financial institutions, home inspectors, etc. These helped commercial real estate brokers to facilitate complex transactions that involves various stakeholders. However, the pandemic has forced the entire world into a digital tunnel. The commercial real estate brokerage business is not an exception either.
Building an online presence for one’s brokerage business is no longer an option. Brokers are creating an online community on social media to increase their visibility and create a brand of their own. Today, the majority of commercial property buyers and sellers are turning to online platforms for property searches and market trends. Hence, digital marketing is an alternative for brokers to boost their sales, generate leads, and communicate with their target audience.
Some marketing ideas to create online branding for a broker are:
- Creating an SEO website friendly
- Develop video content for YouTube, Facebook, and Instagram
- Write high-quality content regarding their brokerage business, success rates, and client testimonials
- Earning backlinks from reputed brokerage and client agencies
- Conduct commercial real estate webinars for buyers and sellers
Proper online branding will help in establishing a reputation regarding the legitimacy of a broker. Moreover, it will enable brokers to interact with clients from a large geographic area. Hence, online branding will not only pave the way for a greater reach but also create a platform for enhanced user interaction and visibility on search engines.
- Organic lead generation
A commercial real estate broker is likely to have a huge database of clients and properties. This database might still contain untapped leads of properties that need to be rented or sold. Moreover, it might also clients who still need to sell or purchase a commercial property. Hence, brokers must recheck their database for such leads who would still be interested in the business. Moreover, mining the data could provide brokers with potential insights, which can be incorporated into the overall business practice.
Safety measures to keep in mind post the COVID-19 pandemic
Even with the alternatives like Virtual tours and online property viewings, property visits cannot be entirely dispensed off. With the gradual lifting of the protocols and restrictions, brokers need to constantly update themselves with Government regulations. Hence, concerns about safety will continue in post-coronavirus commercial real estate practices. Some of the safety measures that brokers must ensure include:
- Site visits must involve adequate social distancing, use of protective gear, and a limited number of attendees
- Every aspect of the operations that do not require the physical involvement of the brokers and their clients should be digitized
- Avoid surprise visits and walk-ins to provide ample time for the seller to sanitize the property thoroughly
- Avoid handshakes altogether and every attendee must maintain a six-foot distance from each other
- Every staff member of the brokerage firm and clients must be screened regularly
- The property, office spaces, and vehicles must be sanitized regularly.
- Transportation to and from sites must involve separate vehicles for brokers and buyers/sellers. It is preferable for all the parties to use their own vehicles
- Minimise touching of surfaces, doors, windows, etc.
- Every aspect of the business not requiring in-person attendance must be digitized
- All brokerage staffers as well as developer’s sales team members to be screened regularly
- All office spaces and vehicles are to be sanitized regularly
Moreover, brokers should arrange for a video chat between buyers and sellers for discussing the aspects of the deal beforehand. As a result, both parties can make faster decisions. Moreover, any disagreements occurring between the parties might be solved in this stage itself. Hence, there would be no need for physical meetings and site visits.
Educate and reassure clients
Commercial real estate brokers must remain updated with the prevalent and upcoming trends in the commercial property business. This way, they can keep both the sellers motivated and apprise buyers regarding the best deals.
In the case of the sellers, brokers must advise them to take better pictures and videos of their property for greater demand online. Moreover, if the property needs improvement, brokers must ask the sellers to make the necessary changes. As a result, the property will gain more traction among interested buyers. Further, the brokers must reassure their buyers that investing in commercial real estate in such a volatile environment will be rewarding in the future. For instance, low-interest rates equate to increased purchasing power and more savings in the future.
In addition to this, it is desirable for brokers to strengthen their communication with their clients. Besides, webinars and online connectivity, brokers must focus on personal communications as well. This includes focusing on important calls, understanding the needs and acknowledging the limits of your clients, streamlining the paperwork process, etc.
Conclusion
It is evident that the pandemic has induced major changes in commercial real estate, and created a paradigm shift in the sector. With a greater amount of reliance on digital tools and online presence, the future of commercial real estate brokerage is ‘uncertain’ yet more convenient than ever. Therefore, ingraining technological innovations with perceptions about market trends will enable commercial real estate brokers to increase their business and offer clients an exceptional experience.