AI is Changing Tenant Representation
Just as it stands to alter many industries, AI will significantly impact my business, the business of advising office tenants. Interestingly, the change has been slow to come from within. Perhaps this is always the case. But the commercial real estate sector has been notoriously slow to adopt new technology or embrace change. I believe this stems from the original business model, which was centered on the provision of information in opaque markets. Brokers had the information tenants needed to transact. It was that simple.
Over the years, the best brokers and brokerages evolved to provide more than just information. They became expert consultants, offering a strategic approach to analyzing markets and exercising leverage to maximize beneficial outcomes. The best advisors have always combined data with strategy. Negotiating has always required understanding the leverage landscape and knowing how and when to pull the right levers. A disproportionately large part of the industry still subsists on providing the most basic service offering, typically centered on showing space alternatives. These professionals often lack strategic insight because they do not have access to key information, do not understand how critical data impacts negotiations, or both. This subset of market participants will be among the first and largest wave of disintermediation.
Our approach to advising tenants has been developed over decades of experience. Despite its nuance, what we once regarded as a proprietary edge can increasingly be replicated by agentic AI. We can and should build an AI agent that automates large swaths of what we do. And we will not be the first or the only ones to do so. Because the industry has long suffered from an institutional aversion to change, those outside the industry may be the first to build models that fundamentally disrupt it. The theoretical moat that once protected the industry by limiting customer access to full data is shrinking. The largest data aggregator in the industry is Costar. Costar gathers data from landlords and brokerages, repackages it, and delivers it through an expensive subscription-based platform as a one-stop searchable database of availabilities and analytics. Its analytics have always been less robust than those of the best large brokerages, but they have steadily improved since its founding in the late 1980s.
For now, owners of office buildings mostly elect to list their space with Costar, but many also maintain their own websites where availability is posted. We have reached a point where site-specific data is largely accessible directly to customers who know how to prompt AI effectively. By scraping the full universe of available data, AI has also made large advancements in producing increasingly accurate market analysis.
This points to a marketplace in which the broker's value is insights. The broker becomes an expert at evaluating data to uncover critical insights that materially impact outcomes. Office leases are unlikely to trade on blockchain anytime soon. In a capitalist system, both landlords and tenants have an incentive to craft advantage from the inefficiency of opacity, which keeps them operating in a marketplace where not all information is revealed. But enough of the market will be knowable that finding the edge will require refined expertise, the kind only the most experienced and skilled professionals can offer. It will be the top ten percent of the industry who survive and thrive.
As the industry changes, customers are less certain why they need brokers at all. Early-stage tech companies, for example, have always struggled to find value in tenant advisory beyond site selection. Today the problem is even more pronounced. Executives at these companies are predisposed to a digital-first mindset. They move fast and are often surprised by the clunky inefficiencies of leasing space. They see brokers as an inefficient vehicle, even a hindrance, to getting what they want: information on available space and buildings. They equate broker value to the least valuable service a broker provides. In doing so, they fail to select an advisor who can engage with them at a true consultant level and thus end up transacting less productively.