The Future of Real Estate

Compensation: Watch for the emergence of the floating salary, whereby real estate firms will bifurcate base salaries into fixed and variable components. The fixed component will likely be 80% to 85% of the market rate for that position. At the end of each quarter or year, real estate companies will study the market and determine the variable component or value of each position and make the necessary lump-sum adjustment payment. Base salaries will likely increase 150 to 300 basis points above the rate of inflation, and annual bonus awards will approximate 90% of the targeted amount. Watch for teaming and profit-sharing to become commonplace in brokerage. The shift toward a 100% split for the high-production broker may be in store for small to mid-size brokerage firms.

Consolidation: The industry consolidation will continue, and as many as one third of today's CEOs will be gone by 2008. Succession and legacy exits will become a leadership challenge for many organizations. Don't be surprised to find the new acquirers to be non-real estate firms. (e.g.: An Amazon.com and Equity Office Properties merger would provide millions of contacts to the acquirer.)

Tenant Service: Watch for tenants to demand service clauses in their rental agreements, and you can expect the "portable" lease to become a reality. Measuring tenant satisfaction, hardwiring the voice of the tenant into the organization and creating artificial intelligence to predict tenant behavior will be commonplace. Building owners and managers may eventually provide small lapel-pin transmitters so tenants' needs (such as HVAC) can be met before they arrive at the workplace. The battle for control of, and access to, the tenant is just beginning to heat up.

Training:Today, most real estate training is process- and procedure-oriented. Watch for a shift to more behavioral and customer-centric training modules that focus on serving the needs and exceeding the expectations of tenants. Interactive, web-based training will be commonplace, and the independent, class-by-class educational programs/training courses of today will be bundled together under a national real estate training institute. A continuous learning environment will replace staged training classes.

Property Management: Over the next six to eight years, the role of the property manager will change dramatically. Tomorrow's manager will provide solutions, not services. Knowledge sharing and relationship management will take precedence over information gathering and process. Collecting valued customers will be as, or more, important than collecting rents--which will be electronic. The new manager will create change, not respond to change.

The New Value Proposition: The new value proposition will focus on: creating recurring points of contact; building lasting customer relationships; increasing the cost of disengagement; creating sustainable competitive advantages; deploying business processes that are convenient, connective and customized; and creating innovative and responsive business solutions. In the years ahead, real estate organizations will shift from form to substance, from geo-centric to client-centric strategies, and from market share to share of the customer. Flexibility and daily change will be standard performance expectations.

Leadership: By 2010, there will be 20% to 25% fewer real estate leaders due to the rise in empowered, autonomous mid-level managers and on-site personnel. Future leaders will be developers of teams, not buildings; creators of value, not process; and advocates for change, not preservers of history.

Competitive Bedfellows: Don't be surprised to see fierce competitors teaming up to create technological solutions or accomplish a mutual goal. Over the next decade, real estate firms will discover that their biggest competitors for opportunities and profits are outside the real estate industry. Also watch for financial-services firms, investment bankers, accounting and legal firms and technology firms to seek a greater share of the real estate pie.

Technology: No area of business creates more fear than the determination of what technology to buy, how much time, money and resources should be spent on technology, and what, if any, benefits will be gained by making such purchases. Over the next five years, real estate companies will experience a 10% to 15% rise in their annual technology expenditures and will discover that there will be no discernable improvement in productivity. Most firms will find it challenging to keep pace technologically, while seeking to train the organization on how to utilize the platform that has been created.

Capital: Capital will seek talent, versus today's business model of talent seeking capital. Wall Street and the international capital markets will increasingly control who gets money. Small investment funds will be created by those excluded from the mega deals. Watch for the public sector to become a more active partner in the redevelopment and renovation of blighted areas.

The future is here. Many do not know how to recognize and respond to a new plethora of opportunities. The best remedy is to develop a vision and strategy that assure a highly productive and profitable future. In what direction are you headed?Christopher Lee ([email protected]) is the president and CEO of the LA-based CEL & Associates Inc., a strategic planning, compensation and benchmarking firm.

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