Commercial Real Estate Services Procurement Intelligence Report, 2023 - 2030 (Revenue Forecast, Supplier Ranking & Matrix, Emerging Technologies, Pricing Models, Cost Structure, Engagement & Operating Model, Competitive Landscape)

Commercial Real Estate Services - Procurement Trends

“Surging demand for office spaces and commercial properties has underscored the commercial real estate services market growth. The trend is attributed to burgeoning urbanization and economic growth.”

Robust procurement of commercial real estate services comes against the backdrop of demographic shifts, urbanization and promising opportunities for high-quality properties, which keep up with the demand of tenants, investors, entrepreneurs and real estate executives. The global market is likely to grow at a 5.1% CAGR between 2023 and 2030. Despite tailwinds, the rising economic uncertainty challenges commercial real estate investors. An increase in inflation and interest rates has led to a reduction in investment volume in commercial real estate. According to the CBRE May 2023 report, investment volume in commercial real estate dipped by 55% in Q1 2023 compared to Q1 of the preceding year.

Meanwhile, multifamily and industrial could provide an impetus as investors pursue compelling and emerging opportunities. According to a National Association of Realtors report in April 2023, multifamily commercial real estate rents increased 2.5% YoY in Q1 2023. Additionally, technological advancements such as Proptech and digital rent payment tools are creating opportunities for commercial real estate owners.

The global commercial real estate services market size was valued at USD 23.89 trillion in 2022. Property technology, or Proptech, is the software that strives to meet the needs of commercial real estate professionals. It facilitates the seamless integration of individuals, technology, and information while streamlining the processes associated with owning, managing, selling, operating, researching, renting, marketing, buying, and investing in commercial properties. It caters to a wide range of professionals, including commercial real estate investors, developers, general contractors, building operations managers, brokers, and legal teams, by simplifying their day-to-day activities and empowering them to make comprehensive decisions.

Additionally, real estate technology startups have harnessed VR/AR technologies to revolutionize online property search by creating an effective, thrilling, and convenient experience for their customers. With just a simple touch, properties become easily accessible, enabling users to explore potential homes through virtual tours. This advancement in property management technology is particularly beneficial for property managers, eliminating the need for lengthy written instructions, as virtual tours can effectively guide users every step of the way.

Big data and analytics are other emerging technologies that use both historical and real-time information to provide information on trends, patterns, associations, pricing, and demographic data. Big data can help companies price a property in real time in line with the prevailing price in that region. It also helps mitigate the risk related to price fluctuations by predicting future prices. Additionally, big data also helps in the selling of property and reduces the risk of choosing the wrong property.

Supplier Intelligence

“What are the characteristics of the commercial real estate service market?

The industry is highly fragmented, encompassing a wide range of services, such as property management, brokerage, leasing, valuation, and consulting. Numerous small and mid-sized firms operate independently at the local level in many regions, serving specific markets or specializing in particular property types/service types. This fragmentation is often driven by the localized nature of real estate markets and the need for local expertise. 

The threat of substitutes in commercial real estate services refers to alternative solutions that buyers can turn to instead of engaging with traditional service providers; the trend could impact the procurement process. For example, advancements in technology and the rise of online platforms could enable property owners and tenants to transact directly, bypassing the need for intermediaries. This can pose a threat to the industry and pressure service providers to differentiate themselves.

Key suppliers covered in the industry:

• CBRE

• Cushman & Wakefield

• Lee & Associates

• Savills

• Marcus & Millichap

• Colliers

• Avison Young

• Newmark Knight Frank

• TCN Worldwide

• RE/MAX, LLC

Pricing and Cost Intelligence

“What are some of the major cost components in commercial real estate services? How are these components impacting the category?”

Property development, management and administration, common area management (CAM), maintenance & administration staff, utilities, security and janitorial, and supply cost are some of the cost components that influence procurement decisions in commercial real estate services. Property management companies offer services to landlords to efficiently oversee their rental property at a cost. The charges associated with property management will differ depending on factors like property category and the range of services offered. In general, most companies typically apply a fee ranging from 2% to 6% of the total monthly revenue as a property management cost. If the property generates a monthly revenue of $25,000, the management fee would amount to $500 to $1500 per month. Another method of determining management fees is based on the size of the property, ranging from $0.20 to $0.50 per square foot.

Typically, the monthly management fee covers maintenance fees, encompassing tasks such as maintaining cleanliness in common areas, garbage removal, and others. In the event of a specific repair, the cost will be subtracted from the reserve repair fund, which is a separate account held by the landlord for property repairs. 

The following table indicates various property management fees involved in commercial real estate services

Real estate agents significantly impact the marketing and sale of commercial properties. They are responsible for listing property, promoting it to target audiences, connecting the owner with necessary professionals, negotiating favorable deals, and overseeing a seamless transaction process, ensuring a successful outcome from beginning to end.

The report provides a detailed analysis of the cost structure of commercial real estate services and the pricing models adopted by prominent suppliers in this market.

Sourcing Intelligence

“Which countries are the leading sourcing destination for commercial real estate services?”

North America is the major region that dominated the market due to the presence of top players such as CBRE, Jones Lang, Lasalle IP, Inc., and others. In terms of commercial real estate sourcing intelligence, the U.S., China, Japan, and the U.K. are the most preferred countries to source these services. In 2023, multifamily assets in the U.S. remained the most demanded asset, generating revenue of USD 25 billion despite a 64% decline compared to 2022.

According to CNN Business Report 2023, offices across Dallas, New York, and Los Angeles remained vacant because of the post-pandemic work-from-home trend. Besides, recent bank failure crises have resulted in a downturn of USD 20 trillion in the U.S. commercial real estate sector.

According to JLL’s May 2023 report, the Asia Pacific region witnessed a decline in commercial real estate investment by 30% YOY in the first quarter of 2023, reaching the total investment of USD 27 billion in the region.

According to a World Property Journal report, in the first quarter of 2023, Japan stood out among other countries in the region by achieving a remarkable performance, with a recorded investment activity of $8.9 billion. This figure reflects a 4.7% increase compared to the previous year, primarily driven by Japanese corporations' significant office disposals and J-REITs' acquisition activity. On the other hand, Australia experienced a decline of 26% year-on-year, recording $3.7 billion in transactions, mainly due to the ongoing effects of hybrid work on office volumes.

“The full services outsourcing model envisages the client outsourcing the complete operations/manufacturing to single or multiple companies.” 

In terms of the engagement model, property owners, buyers, and investors look to outsource their commercial real estate services to reduce the burden of property development, maintenance, managing property, finding tenants, marketing, and completing the process for both parties—buyers and sellers. It is important to maintain relationships with the brokers. Brokers play a crucial role as facilitators in numerous transactions. They often establish enduring connections with property owners and serve as intermediaries, connecting them with potential buyers who possess investment capital. Establishing an extensive network of broker relationships is an essential component in the endeavor to cultivate robust deal and procurement opportunities.

An approved provider model is the most common form of the operating model due to its potential for higher value creation. In this model, commercial real estate service providers must have certificates such as Certified Commercial Investment Member (CCIM), Certified Property Manager, and government certified, and they should meet various other predefined sets of qualifications.

The report also provides details regarding peer analysis, recent supplier developments, supply-demand analysis, competitive landscape, KPIs, SLAs, risk assessment, negotiation strategies and low-cost/best-cost sourcing analysis. In the report, we have tried to provide a holistic industry perspective, an overview of the supplier landscape – the presence of different types of players and the competitive pressure within the industry as a whole (PORTER’s). Similarly, the supply chain practices under sourcing are also covered. One such instance is the operating or engagement model which encompasses all the business processes conducted within an organization. It is an integral aspect of the company's operations and plays a crucial role in its success. 

Commercial Real Estate Services Procurement Intelligence Report Scope