An 8-Year-Old Company Worth $20 Billion $35 Billion Is After Your Commissions

An earthquake is hitting the real estate industry. If you’re a commercial real estate broker – your world is going to be rocked like an off-the-chart earthquake!

Do I have your attention?? I know this is a bold statement, but the trends are clear. Disruption, driven largely by WeWork and other coworking / office sharing startups, is inevitable. The impact may not be tomorrow, but it is coming. Then again, the disruption may be happening before your very eyes and you don’t even recognize it.

Success is in many ways a perplexing thing. It’s what we all strive for, right? But it can also cause us to take our eyes off the ball, to fail to recognize threats that are staring us in the face. Threats that challenge those very things that made us successful.

If you’re a commercial real estate broker who has enjoyed success, the impact may not be felt until it’s too late. It may begin in small ways. Significantly shortened lease terms. Reduced commission rates. But as WeWork and its counterparts (and trust me, there will be many more) continue to gain market dominance, the rationale for the traditional real estate brokerage role will continue to erode.

The business terrain is littered with the remains of seemingly secure companies, in countless industries, that woke up one day and found that they had been disrupted, blindsided by their past successes and a failure to see, or to acknowledge, the change that lay before them. You can find examples from other industries here and here.

Most recently, WeWork announced that it is “on a $1.5 billion revenue run rate through the end of Q1” and has embarked on a new capital raise “at around a $35 billion valuation.” (Up from $20 billion just last year, when they raised $700 million in funding.)

The trends are astounding, given WeWork’s relative youth. The company enjoyed an 82% occupancy rate at the end of March, up from 73% from one year ago. And this happened despite adding facilities in 33 new cities and 9 new countries.

And it’s not just the coworking / office sharing phenomenon that will disrupt the industry. There are other disruptions as well, including the use of technology to turn the commercial real estate business model on its head … more about this in a future article.

Bottom line … will you be disrupted and find yourself digging out of a pile of rubble? … or will you be one of a handful of disruptors who enjoy the substantial benefits of early adoption?

Experienced brokers – Why did I say your world would be rocked?   Not only will you be impacted with losing clients to coworking spaces, but as these new competitors begin to go after your larger customers using salaried employees with an expense account, you’ll be working harder with more costs. How will this have an impact on your company or team? How will you recruit new brokers? Perhaps the most vulnerable are those who are just starting out or are in the early stages of their careers. But they are also the ones who are the best positioned and the most apt to embrace change. Can you afford to subsidize them to compete with the massive cash flows from Wall Street? Or will you let them be one of the disrupters?

If you’ve been in the industry for less than 3 years – Are you technology savvy? Do you look at the way things are and see a better way? If so, then these are good times, not bad. It all hinges on your determination and ability to capitalize on the disruptions that are afoot. Remember that the flip side of crisis is opportunity.

Seize the day.

Obviously, I can’t put into this short letter the changes I see coming our way or the keys to success in the face of these changes. Hundreds of brokers will read this. The outdated 80/20 rule tells us that only a few will see the impact. I say the rule is outdated because of the impact of technology. The new rule is 95/5 – look at new companies in every industry that are disrupting. I expect only 5% of the people reading this letter will contact me. Which category do you fit in?

What are your thoughts? Please contact me today to discuss ways to leverage these changes to your benefit.