print header

Gold Rush: Swelling Numbers of CRE Brokers Making for Tougher Competition in the Ranks

Long-Running CRE Recovery Attracts Younger Brokers; Spurs Larger Firms Expand into Smaller Markets
August 24, 2016
The long-trending up-cycle in commercial real estate markets has created a mini-boom in broker ranks over recent years, with a larger number of younger, first-time commercial brokers flocking to the industry.

The number of commercial members with less than two years of experience nearly doubled to 9% in 2016, from just 5% in 2015, according to the National Association of Realtors’ 2016 Commercial Member Profile. Also, NAR found the influx of neophyte brokers lowered the median for years of experience among its commercial real estate members, from 25 years to 20 years.

The 2016 NAR Commercial Member Profile was based on a survey of 2,048 members. Approximately 80,000 commercial real estate professionals are members of NAR.

“As the U.S. economy continues to experience strong, steady recovery, NAR has seen more and more members choose to specialize in commercial real estate,” noted NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, FL.

Lynn Drake, president and founder of Compass Commercial in Troy, Michigan.

Lynn Drake, president and founder of Compass Commercial in Troy, MI, has experienced the effects of this recent broker boom first hand. She hired 10 new agents in the past two years, eight of whom were new to the business.

None of them lasted, she said. "The new ones always under-estimate how hard it is to be good at this job.

“We tell all the (new) agents they won’t see any money for the first six months. Then they get four months in and they say they have to leave because they aren’t making any money,” Drake said. “There seems to be a disconnect between what we tell agents to expect, and what they believe. Everyone thinks they'll be the exception to the rule."

The lure of bigger-dollar deals is great, however, and she said new prospects keep asking to join her firm.

“I’ve had several residential agents approach me in the last 90 days about working for us because the inventory of for-sale homes is so low. They can’t make money in residential real estate so they are looking to make a jump to the commercial side,” Drake said.

The influx of new hopefuls has also affected the median gross annual income for commercial members, according to NAR. In 2015, commercial brokers earned a media gross income of $108,800, down from $126,900 in 2014. Brokers and appraisers reported the highest annual gross income at $145,800 and $130,800 respectively while sales agents reported the lowest at $67,300, which is in line with 2014 results.

Those with less than two years of experience reported a median annual income of $43,400 in 2015, down from $67,200 in 2014. Those with more than 26 years of experience reported a median annual income of $165,385 in 2015, up from $162,800 in 2014.

Compass Commercial's Drake tells prospects to expect to take home between $20,000 and $30,000 their first year on the job. "The upside is they should expect to double their business every year thereafter," provided they last, she said.

'Big Dogs' Also Fanning Competition for Talent in Local Markets

Chad Brock, managing director, principal of Brock Realty Advisors in Bakersfield, CA, said he's seen Marcus & Millichap and several other large national and regional firms angling for more local business in smaller markets, a change that has happened over the past three to four years. That competition makes it harder to compete for talent as younger agents are drawn to the big name brokerage houses.
Peter G. Jaques, broker at Hansen Real Estate Services Inc. in Des Moines, Iowa.

Peter G. Jaques, broker at Hansen Real Estate Services Inc. in Des Moines, IA, said he saw a similar impact after Jones Lang LaSalle, one of the biggest real estate firms in the world, entered his market several years ago.

“From a broker-to-broker perspective, there are a lot more of us hustling out there now. I don’t mean that in a derogatory way. I just mean brokers really have to work harder to get listings and close deals,” Jaques said. "Competition is high at every level."

Another unexpected consequence resulting from the large number of inexperienced brokers and heightened competition is that some may give sellers and investors unreasonably high expectations on the how quickly a sale can occur and what price they can get, Jaques added.

"Most sellers have numerous brokers contacting them weekly pitching their services. This has created an environment in which sellers are less likely to give an exclusive listing to just one broker," said Kevin Fulton, managing partner at Market Retail Partners in Nashville. “On the leasing side, it’s become a landlord’s market, and some owners handling leasing themselves. In this market, if you have a strong location, brokers and tenants are coming to you.”

See Where You Stack Up in Deal Making Based on National Averages

NAR reports the increase in new commercial members has resulted in a shift in license type from broker to sales agent. Forty-seven percent of NAR’s members who practice commercial real estate are brokers, down from 59% last year; while licensed sales agents made up 31% of commercial members, up from 24%.

The median sales transaction volume among NAR commercial members who had a transaction was $2.93 million in 2015, a slight increase from $2.92 million in 2014.

Eight percent of commercial members reported not having a transaction at all, likely due to the influx of new members in commercial real estate, the NAR survey noted.

An analysis of CoStar data also found a lower median sales figure so far this year at $2.35 million among sales dealmakers who have completed at least one deal this year. The average national figure among all brokers is much higher at $3.84 million at an average number of 1.35 deals.

Five Top Volume Markets for Sales Dealmakers YTD
  • Market -- Ave. $ Volume/Sale
  • New York City -- $33,474,896
  • San Francisco -- $10,856,061
  • South Bay/San Jose -- $9,949,520
  • Washington, DC -- $9,187,846
  • Boston -- $8,301,115

    The median square footage of leasing transaction volume among leasing brokers who have completed at least one deal this year is 17,481 at an average number of 2.9 deals so far, according to CoStar data. The national average is 22,629 square feet at an average number of 3.9 deals completed.

    The average transaction volume ranges from a low of 4,502 square feet at an average of 1.5 deals in Duluth, MN, to a high of 61,663 square feet at an average of 7.1 deals in Reno/Sparks, NV.

    Five Top Volume Markets for Leasing Brokers YTD
  • Market -- Ave. SF Volume/Lease
  • Reno/Sparks, NV -- 61,663
  • Memphis, TN -- 58,418
  • Savannah, GA -- 49,225
  • Inland Empire (CA) -- 44,157
  • Fort Smith, AR -- 43,351

  • GET IN TOUCH        Contact CoStar News Team: