The pandemic radically altered the real estate landscape for commercial clients, forcing agents and brokers to find new ways of working to accommodate those changes. Many of the traditional ways of doing business were no longer working, especially in the early days of the pandemic.
I recently spoke with Shafin Jadavji, president and broker of record at Cubecom Commercial Realty, about meeting those changing consumer needs.
What is the biggest change you saw during COVID in how your customers bought/sold/leased/thought about real estate?
Shafin Jadavji: At the start of the pandemic we weren’t sure what to expect as the concept of everyone can work from anywhere (home) was only a concept. Being a brokerage with a focus on office leasing meant that it would be a long road ahead for our broker teams. In a matter of five business days we not only lost eight deals, which were all conditional, but we also had over a dozen mandates come to a halt. We quickly understood that there was not going to be office occupancy for the 2020 calendar year. In fact, we are only now starting to see a return to business for the small- and medium-size segment.
What did you learn and how did you pivot your business as a result of the changes in customer demands brought on during the pandemic?
After spending the first 30 days in a wait and see pattern, we took all the same steps as other companies – looking at our expenses, seeing what we didn’t need to be spending on, and going to our service providers with whom we had contractual obligations to ask for reductions and/or deferments. Most of them were great.
After that, we knew we had to start generating revenue through different avenues. We had a team of very skilled individuals on the design and marketing side so we picked up the phone and started calling landlords to see how we could assist them with their marketing in an environment where tenants did not want to tour space but would have to continue to deal with their real estate needs. One of the biggest landlords agreed and we started to do space plans, virtual tours, renderings and marketing brochures across the country, and that got us through the month of May.
At the same time, we turned our focus to the medical sector, which by most broker accounts, is painful work for not a lot of fees. But this segment was more immune to the pandemic than other office and retail uses by the very nature of the work involved. We took the challenge on and were able to systematize and therefore capitalize on an underserved market, which continues to grow today.
In the background the team got together and started putting more advanced processes together for office tenants for when they come back into the market for space. Now our office leasing program is not just to find space, but it is:
- find space; feasibility studies completed during conditional periods;
- a program to complete design by the time you execute your lease;
- renders that are used for both communicating to staff and external stakeholders but at a real-life quality that is only matched by the end product;
- virtual 3D tours of what the future space looks like before you start swinging a hammer (but while permits are in process); and
- taking care of all permits and closeout documents.
How is the role of the commercial brokerage changing?
I think there will be three emerging trends and all will be centred around one theme – disintermediation.
1. Brokers pay too much to their companies by way of splits.
Most of the large firms take up to 50 per cent of the income earned by a broker/salesperson and while that may have made sense three or four decades ago when you had an elite team bringing in new clients and passing them through to their teams for service, it does not make sense today with younger, more resourceful brokers bringing in the business. There will be a shift to brokerages that charge less to their salespeople.
2. Brokerages will have to provide more value added service.
Customers are demanding more value for money. The process of real estate is not simple – whether it’s an office move or an acquisition/disposition – and brokers have a unique opportunity to provide more guidance and more value because they are the first to get involved in a process which can sometimes involve up to 20 different contracts to complete work and move in.
3. An increasing focus on social responsibility.
Brokerage’s role in the broader community will also be re-examined. This one is more of a hypothesis, or perhaps “hope” is a more fitting word. The world is shifting and getting smaller everyday. After the industrial revolution, the focus on profits was paramount as stock markets were fuelled by the prospects of growth and limitless economic opportunity. A lot of that growth had an unexpected impact – on the pursuit of personal happiness, an increasing disparity of income between rich and poor nations, and of course the impact on our climate.
I believe that in the end, a few people may remember a company for the money that was made, but the social impact that was left behind will be what is remembered and felt. As a brokerage, or any business, we have to spend a little more time thinking how we can leverage our business for good – whatever that good is.
As brokerages and brokers, if we continue to only service step one out of the multi-step process then we will no doubt be at risk, as the revenue generated in step one is arguably higher than anywhere on the value chain. We can think, “the client wouldn’t have this property without us,” or we can think, “how can we help the client so that they are grateful about having allowed us to find this property for them?”
Can a lawyer or an accountant assist with finding the space? Yes, that part is not difficult. It’s the rest that is. We have to provide more as brokerages.
How is the role of the commercial agent changing?
Much of the technological innovation has focused on the residential markets as the segment is so large, but those changes will filter down to the commercial real estate arena soon enough. Accordingly, the role of the commercial agent is changing – and we know because we get the calls asking for help. Do you have an insurance agent, a coffee company, a handyman, an electrician? What do you think about this, or that, and these are the most basic things we can do. Our hypothesis is that most of the work that is currently done by brokerages can, and may, be done by accounting and law firms as part of a full-service package if we do not change quickly enough to maintain control of the value chain.
What are you doing differently at Cubecom? Why?
Full service is in our name. We have a logo where a lightbulb hangs in place of the “O” in Cubecom and it matches well with our brand. That’s because our team takes care of the client from finding space, to designing it, building it, furnishing it and taking care of pretty much anything and everything our clients require. People think it has to do with our design and construction processes, but the reason for the lightbulb is part of our culture and how we strive to work towards shedding light on our industry on things we can do better and dealing with hard issues and challenges that the client needs help and support on. Ultimately leading a path to greater customer service.
In our company, when management is challenged to do something better, it becomes part of our culture. There is no unkindness in our working environment – that is a dismissible offence. Everyone working on a file is treated as equal partners no matter what the experience. We all pull a different rope of a very large ship called innovation in customer service. Are we there yet? That’s impossible in the way we have set the minds within our organization. We will continuously strive to get better.
What trends are you seeing in the commercial real estate industry?
The news headlines say it all: industrial is on fire, retail will shift to more experience-based services and office – well, that one is the interesting debate. Some of my colleagues say that it will return to the same as before but I have to disagree with that sentiment. For an owner-managed business that can balance the demands of their workforce and the capital that can be reinvested in the business, it’s an easy equation – create flex/agile environments that make people happier on a smaller footprint. The footprint reduction will vary and my guess would be that small- and medium-owner managed businesses will shed 30 to 35 per cent of their space. Not aggressively, but opportunistically. Large corporations will do the same but on a smaller basis – think 10 to 20 per cent, and more through attrition than opportunistically.
But the office sector in general will be okay. There has not been a material speculative developer of office inventory, and any vacancies that arise in the short term will be filled through economic growth and rising population levels and most of the short-term pain will be borne by private business. Going into the pandemic, the largest landlords had the longest “weighted average lease terms” on their books so when many of those leases come up in the future, the temporary gaps left by COVID would have likely been filled by that time.
What is a half-baked crazy prediction you have for the future of the commercial brokerage business, the role of the commercial agent and/or the commercial real estate industry?
This is a great question. I don’t know. When we started Cubecom we wanted to be the best office leasing firm in Toronto. Cubecom is a mash up of two words – cubicle and commercial. We were focusing on the office at the time. In 2015 we had heard enough from clients that they needed a legal review so we brought legal in-house. In 2017 we heard enough clients say they need space planning so we brought that in-house. By chance, our space planner ended up being a fantastic designer so in late 2017 we started to assist our clients to design their new offices. In mid 2018 a client asked us to manage to build out their space so we did and that was the formation of our project management division.
We continue to grow our spectrum of services because that is what we think will be the future of commercial brokerage. If your main focus isn’t to reduce stress of your client base and to put time back onto their schedules, someone else will.