Information asymmetry is a challenge that has existed within the real estate industry since the beginning of time. Whether we are dealing with agent-principal conflicts as they relate to adverse selection in a lease negotiations, there is usually one party that has more information than the other. It’s not a perfect market and decisions don’t get made at the press of a button.
This opacity has been blamed on the brokers, and to a certain extent, it’s a fair point. Brokers have pitched tenants with the message that they have access to the information and can help a tenant see through the fog. There are firms like 42Floors, JLL’s HiRise, etc that are trying to make the market more transparent, but it’s not just a problem of eliminating brokers.
Landlords are big beneficiaries of this dynamic too. They see a lot of pricing data, both from the investment side (people making offers to buy their buildings) and from the leasing side (proposals they receive from tenants interested in leasing space.) I’ve heard plenty of stories about landlords leveraging tenant ignorance to hold rents higher, provide fewer concessions, and generally increase their margins. (I don’t blame them. I would do the same thing if I was in their position!)
What tenants need is negotiating leverage when engaging with the market. They need assistance in aggregating all of the terms that might be negotiated, establishing value for those terms, and playing one building off another to get the best possible deal.
Brokers can no longer depend only on offering tenants access to traditional data points such as visibility to the market through listing services like Costar, a “comps database” or Tenant In Market (TIM) reports. While these might make a tenant feel more in tune with the market, the fact is that this information is either readily available or unreliable. The Multiple Listing Service is available on line for a fee, comps only provide a historical record of where landlords were willing to do deals, and TIM reports aren’t terribly accurate or reliable.
Don’t get fooled into thinking that you can fight information asymmetry through data collection. Level the playing field by creating your own market!