Study authors Joseph Gyourko and Asuka Nakahara, director and associate director of the Zell/Lurie Real Estate Center at the Wharton School of the University of Pennsylvania, say the recent bankruptcy of Zethus "casts doubt on the near-term potential for an e-firm to fundamentally change the business model of traditional commercial brokerages." Zethus, backed by Goldman Sachs, had planned to provide technology for Web-based commercial property transactions.
Gyourko and Nakahara point to what they call the first signs of a "discount brokerage model" for commercial real estate that they say if successfully adopted, could "facilitate the move to a more purely Internet-based brokerage operation." As an example, the study highlights Tenantwise.com in Manhattan, a discount brokerage-type operation that could be a model that would move clients toward a strictly Web-based operation. For online commercial real estate companies like Peracon or Zethus to be successful online, "it may be important for a successful discount model to have been developed," the authors write.
The findings are part the second part of a three-phase study being conducted by the Society of Industrial and Office Realtors to track the impact of technology on commercial real estate brokerage. The third phase will be released at next week's Realcom 2001 conference in Dallas.
It will answer the key question behind the whole survey, according to Stephen Podolsky, president of the SIOR Educational Foundation and principal of Podolsky Northstar Realty Partners, Riverwoods Il. That question, according to Podolsky, is: "Will the Internet evolve into more than an efficient information conduit for commercial real estate and ultimately realize the hope of those who believe that e-commerce will transform the way commercial real estate companies conduct transactions?"
The second phase, released this week, analyzed 25 Web-based operations followed by Wall Street brokerage houses and didn't include local sites. Among the findings: the office sector is most heavily targeted through online sites; even though online commercial brokerages may not have proven their economic viability, their very existence has helped boost efficiency in both listing properties and searching listings; the added efficiency will put pressure on brokerage fees; and the increased efficiency and pressure on broker fees may speed specialization within the industry.
The study authors say recent events such as proposed merger of LoopNet and PropertyFirst show that the sector is still in its infancy and whether companies will ultimately survive on their own or merge into traditional companies is unclear. Sources of revenue for Web sites vary, according to the study, with either ads generating revenue or venture investors supporting the site. Because across the Internet ad revenues haven't been adequate to support sites, the authors say many sites will eventually charge fees to access data.
The study's first phase, which analyzed the scope of the commercial real estate industry, concluded that the industry's revenues would continue to attract entrepreneurs. The study found that buying, selling and leasing office and industrial real estate in the United States generates $10.4 to $13.3 billion in annual brokerage commissions, while the present value of brokerage industry profits for office and industrial properties comes in at between $5.7 billion to $7.1 billion.
SIOR is an international association of commercial real estate professionals, while the nonprofit SIOR Educational Foundation aims to foster education and research initiatives that advance professionalism in the commercial real estate industry.
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