The Impact of New Information Technologies on the Commercial Brokerage Industry: Phase I: What Is at Stake? Estimation of the Revenue Flow to the Office and Industrial Brokerage Sectors

Joseph Gyourko and Asuka Nakahara

Zell/Lurie Center Working Papers from Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania

Abstract: We estimate there are from $10.4-$13.3 billion in annual brokerage commissions on office and industrial properties. Our estimate is based on an underlying imputation of office and industrial sector size that relies on new data that constitutes a census of properties in major markets. This is important because estimation error is reduced the more one can rely on a census for the measure of market size. Previous estimates made before these data became available look to be subject to much greater estimation error. Our analysis concludes that there is over 7 billion square feet of office space nationally and nearly 23 billion square feet of industrial product. In aggregate, we conclude that about $185 billion in lease revenues are generated annually on this space.

Assuming the midpoint of $11.8 billion from the estimated range of gross commissions, we calculate that the present value of industry profits is in excess of $5 billion. This figure clearly is large enough to attract the attention of entrepreneurs using new information technologies to try to capture a portion of the value in this industry. The next two stages of this research will more carefully examine the nature of e-business operations in the commercial brokerage space and how they might influence the industrial organization of the commercial brokerage industry, the nature of brokerage firms, and compensation to brokers.

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