TOP BROKERS: Leading brokers forecast further industry consolidation

Leading European brokers expect to see further consolidation in their industry in the coming years.

The difference between the leaders and the rest of the pack in terms of size and performance has changed enormously, JLL's head of EMEA Christian Ulbrich told PropertyEU. ‘Ten or 15 years back, the pack was much much closer. Now there are two companies who have emerged as leaders and a pretty big gap and then a couple of other companies. The companies in the middle will have to take a decision on whether they compete for a position at the top or whether they go in another direction.’

JLL emerged again as the top broker in terms of investment advisory in our annual ranking this year, closely followed by CBRE with a margin of just €200 mln on a total of €38.8 bn. Cushman & Wakefield came in at number 3 with €15 bn but the group of contenders for third position appears to have grown in the past 12 to 24 months. Colliers International, DTZ and Savills are all in the running while the odds for Paris-based BNP Paribas Real Estate are also looking good thanks to its dominance in two key continental markets – its home market France and Germany. Even Stockholm-based Catella is no longer an outsider according to our ranking, thanks to its partnership with Strutt & Parker in the UK.

Ulbrich expects to see increased M&A activity in the course of 2015. ‘Consolidation is a healthy and normal development in an industry that is incredibly fragmented and driven by small companies. Fragmentation is not good for clients. They expect first-class service and that is expensive, certainly in terms of technology investments that are required. We need more consolidation to improve the quality that the sector can deliver to clients.’

Other industry watchers agree that further consolidation, both in Europe and globally, is on the cards. The pace of change in the industry is ushering in a new period of consolidation, noted Martin Samworth, CEO EMEA at CBRE. ‘I think we will see more consolidation, but this isn’t a recent phenomenon, it all started much longer than 10 years ago.'

The question is where the next big move will come from. As one source told PropertyEU, there’s always a lot of speculation in this industry about who will marry who. ‘There are lots of singles trying to make a couple.’

One of the hot topics at Mipim this week was who is in the race to buy out the Agnelli family's stake in Cushman & Wakefield. Most industry watchers agreed that DTZ was 'undoubtedly' looking, but Colliers International also needs to make a move to stay in the game. Savills is believed to have shown interest in the past and a merger would certainly give its European business a huge boost. But, according to well-informed sources, the company is not interested in all parts of the Cushman & Wakefield platform. 'The US platform is not particularly strong or profitable. Savills now has a good US partner following the acquisition of Studley. If they were interested in Cushman & Wakefield, they probably would only be interested in the European parts.'

Size is becoming increasingly important
According to JLL's Ulbrich, size is becoming increasingly important. ‘In a good market anybody can do a big transaction. We would argue that it’s very hard to give advice on capital market transactions if you don’t fully understand the underlying asset. To fully understand these underlying assets you need to have leasing information about these buildings. It doesn’t help to have a contract for historic data. We have thousands of agents in the company and we do around $200 mln in transactions every single working day in Europe and $450 mln globally. The amount of live data that we have and the knowledge that we have about under-bidders is very rich and we believe we can turn that into an additional benefit for our clients.’

The real estate industry is still evolving, Ulbrich said. ‘If you look at our industry and the way it operates, it’s not very different to how it was 20-30 years ago. Other industries have digitalized their way of working much more than our industry. I think technology will have a massive impact on parts of our industry. If I look at our technology budget and how that has increased in the past couple of years and how closely technology is connected to our traditional services – this is massive. You really need to have a decent amount on your balance sheet to carry those investments. I think that will drive consolidation.’

Ulbrich also sees new threats from online businesses that specialize in monitoring and marketing vacant buildings. ‘New online players are really taking a massive amount of market share there. The time of signboards and newspaper advertisements is virtually over. A big part of the market is going online to get that connection. This is still in its infancy, but the industry has to make up its mind how it wants to deal with this challenge. I think we’re just at the beginning of a new revolution.’

Recruitment is a major focus
Recruitment of new talent is a major focus for JLL. ‘The whole story of how to attract younger generations and the best talent into your organization is something we are very focussed on,' Ulbrich said. 'In that sense, some companies carry an advantage over others. JLL is very clear in its strategy in terms of its focus, branding and the type of company we want to be. The moment you become slightly unclear and a bit mediocre, you will see an impact on the type of talent you are able to attract.’

Ulbrich claims new recruits are now less interested in a high salary than during the boom years. ‘What has changed in the past couple of years is that the pressure of a high salary has decreased in importance. When we talk to graduates and young talent, we generally get questions that extend beyond the pay package. Young employees are interested in more general things, whether or not the job is challenging or not, a company’s values and how it operates, whether it offers scope for entrepreneurism and whether it is a political or pragmatic organisation.’