PROPERTY REVIEWER

Big guns go boutique, but no seismic shifts

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OPINION: MORE high-achieving commercial real estate professionals in Australia are deciding to go boutique.

Some of them are electing to join existing practices, while others are starting new outfits.

This, of course, is nothing new in our industry.

Many top-names have left the big firms for smaller outfits over the years for a multitude of reasons.

While there is no systemic threat to the ascendency of the big firms and their control of premium assets in core markets, this crescendo of activity will not go unnoticed…and the dust is yet to settle.

This latest wave of an existing trend shows that the larger firms face challenges catering for the aspirations of some of their top performers.

This is partly due to industry trends, and more due to broader megatrends.

There are fewer barriers to leaving the big firms today than existed even just a few years ago.

The growing prevalence of personal branding over company brands, content marketing and, of course, social media, creates a more level playing field.

The greater emphasis on client experience and on people doing business with people, rather than with companies, means top performers will likely feel more emboldened to go it alone.

It is true that some investor and occupier clients will always prefer the perceived safer choice of a global brand over a boutique firm as a service provider.

However, there are also plenty of clients who will award work based on individual relationships and experience, and will go with the best-in-class individual wherever they work.

Many seem more open-minded to this approach; property owners can adopt dual-agency agreements for marque transactions or leasing assignments.

They can appoint a global firm to satisfy risk averse stakeholders, while simultaneously hiring one boutique firm with whom they may have a stronger personal relationship, or who has a better track record.

On the occupier side, firms can enter into master service agreements with global firms that contain enough wriggle room to deviate when and where they choose to.

Boutique firms can curate brands which more accurately reflect the clients they choose to serve. They are often nimbler, unencumbered by perceived conflicts of interests, and – of course – not burdened by large overheads.

More importantly, these firms more accurately reflect the personalities of the people who work for them – making a more cohesive and authentic offering.

Based on the quality of their people, their track record of results and understanding of the brief, many of these boutique firms are competitive choices when procurement reviews decisions.

In some cases, they may in fact be the safe choice.

That is another risk for the big firms. As more of their clients become accustomed to granting transactions to boutique firms, it presents a threat to their most profitable service lines.

And landlords and tenants may become inclined to work with smaller firms on increasingly larger and complex deals.

So, how will the bigger firms respond?

I expect they will develop more creative compensation structures to retain top fee writers…although some of the top performers are already on pretty sweet deals, they’re not sweet enough for some.

There will also likely be an even greater focus on having leadership that can cater for the aspirations of – and retain – their best and brightest.

Of course, it would be a mistake to promote these people into leadership as a way to keep them – in most cases, that would only reinforce an existing problem.

The drive into middle markets by bigger firms that gained momentum in recent years – and clearly delivered lots of new revenue as the push occurred – will likely be reassessed.

While I do not expect the big firms to just cede this territory, the loss of talent means they will need a new approach before they make their next push.

There will be a focus on shoring up their positions where they are strongest: premium assets in core markets.

The big firms will focus on their strengths: scale, scope of services and stability.

They will likely also add in some innovation, with other expertise and offerings that the smaller firms can’t quickly replicate.

Overall, stopping the exit of people who hold the closest relationships with their most lucrative clients will be the key objective.

These operators just became even more important from a retention perspective.

While they have clearly lost ground in middle capital markets, and to a lesser extent in major leasing markets, the big firms still hold the advantage in prime capital markets and marquee leasing assignments.

If they loosened their grip on this segment of the market, or an Eastdil-type competitor emerged, then that would represent a real threat to the status quo.

Even though we’ve seen some shifts, and threats have emerged, we’re a long way from a seismic shift in Australia right now.

By Darren Krakowiak.*

Darren is the founder of CRE Success. He exclusively serves the commercial real estate sector with coaching, corporate training and as an invited speaker at industry and company events. He also hosts CRE Success: The Podcast – season 2 starts in April 2021.

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