Impact of the internet on international real estate office markets. (Journal Of Real Estate Portfolio Management).

Executive Summary. The present study examines the impact of the Internet on the real estate office market through a survey of real estate professionals in traditional companies in Boston/U.S. and London/U.K. This survey captures professionals' opinions on the use of the Internet and how it affects their business. The results from both cities indicate differences when using the Internet versus traditional practice. The Internet seems to affect the role of the transaction participants, the length of the process but not the participants' earnings or transaction steps. It is currently used as a listing service, information-gathering resource and communication tool.

INTRODUCTION

The Internet is a recent expanding medium of economic and social exchange. It is most effective at breaking down barriers, improving information flow, and speeding up the decision-making processes (Hartung C.J., et al., March 2000). Two factors significantly contributed to the increase in Internet adoption among real estate brokerage companies: increased computer use throughout the population as well as companies, and the downturn in commercial real estate. This downturn led brokerage companies to list properties online to reach a wider market (Rebuz.com, 8/8/01). Similar to the retail industry and Web-based marketing (Baen J., 2000; Miller N., 2000) the real estate industry is expanding its online listings by continuously advertising additional properties, thus providing property seekers with a variety of options.

The Internet use in the U.S. and the U.K. can provide a context of the Internet's adoption in the two countries where the survey took place. Nielsen/Net Ratings estimated that more than 62% of the U.S. population had Internet access in 2001 either at home or at work in comparison with 57% the year before (Stellin S., 2001). According to the U.S. Department of Commerce, in 2000 51% of all U.S. homes had a computer and 41.5% had Internet access. High per-minute charges have prevented people in the U.K. and other European countries from browsing the Internet, leading to a lower growth than in U.S. (Wickham R., 2000). In the U.K., household PC penetration was 46% (Nielsen, 2001). The U.K. government's E-envoy indicated that Internet penetration in the United Kingdom was still less than 60% (Holmes M., 2001). The housing market transactions have been more easily facilitated through the Internet compared to office transactions. Studies in the U.S. show that the numbers of homebuyers searching for housing on the Int ernet are between 40% [Forrester research, 2000; Farnsworth C. & Evans B., 2000] and 56% (Murray M., 2000). In general 79% of agents claim they do not think the Internet threatens their job (Gomez Research, 2000). However, the search for housing in the U.K. is mostly conducted through traditional methods because of limited Internet use.

This study was motivated by the limited research on the Internet's impact on the Real Estate Office Market (REOM). A survey of traditional real estate companies was conducted in Boston and London in order to capture the "real-world" views on Internet adaptation and especially its impact on the office properties transaction process. Boston was selected because of its small office market size compared to other major cities in the northeast U.S. and what brokers see as a tight, relationship-driven office market. London, however, was selected because it is the largest and most representative office market throughout U.K. What could the survey results indicate for these cities in two continents? This survey tries to identify how Internet use affects the role, time, and earnings of the key participants involved in the transaction process of office properties as well as the transaction process length. This survey of traditional real estate companies in Boston and London indicates that the Internet affects the roles of the transaction participants allowing the real estate business to remain competitive.

LITERATURE REVIEW

The traditional real estate industry has been characterized as fragmented and technophobic (Hartung C.J., et al., 2000). A recent literature review (Dermisi S., 2002) shows that although the Internet Real Estate has made significant steps in its advertisement side, the transaction process has not shared the same growth. Adaptation of the Internet, as a new medium in a traditional "relationship driven" sector, was slow in the mid-1990s but has increased exponentially in the past few years (Baen J., and Guttery R., 1997). From the 1995 onwards, real estate Web sites evolved from static brochures to comprehensive online property listing sites with various information on the property, location, demographics, and statistics for the area and finally to process management sites that create efficiencies in the workflow process along with providing information (Harvard Design School, 2000; Bond M., Seiler M., Seiler V., Blake B, 2000).

As in other industries, views vary on the Internet's use and impact on the real estate sector. Some real estate professionals believed that traditional real estate companies could not easily adopt the Internet. Others argued that "in the new information technology paradigm of place and space, the classic location, location, location mantra of real estate decision-making is replaced by information, communication, location" (Roulac S.. 1996). In recent years another thought has been that "although real estate is not very technology-oriented, people are beginning to appreciate that technology can be relationship-oriented" (Pike P., 1998). The relationship between brokers and the Internet is not mutually exclusive, but allows technology to complement them in order to produce more valuable services (Devine A., 2001). Bond M., et. al. (2000) reported that most of the firms they surveyed either operate their own Web sites or list their properties on larger industry sites. While the Internet cannot replace relationsh ips, brokers' roles will likely be redefined as more emphasis is placed on financial and analytic services (Hartung C.J., et al., 2000). Brokers and clients still need to communicate but they are meeting face to face less and "talking" electronically more. Brokerages must distinguish themselves in other ways mainly by their ability to help companies make increasingly complex decisions about real estate (Moore P., 1999).

In the real estate business using a common online platform that functions as a repository for documents and information is a vital first step toward simplifying the complex transaction process (Carpenter S., 2000). The combination of commercial real estate's limited transparency and information sharing as well as the variety of deal clauses are significant obstacles to the use of a common standardized platform (Miles M., 2000; Bergsman S., 2001). Consortia, like Constellation and Octane, have been formed to overcome these obstacles. Although it is cheaper and more flexible for consortia to merge with other companies, the challenge is to pool all listings together in a comprehensive and meaningful way on a neutral platform for all players (Harvard Design School, 2000; Bergsman 5., 2001). Along with consortia, portals have begun to evolve presenting a new medium for possible future transactions. The portal evolution has led to trends that consolidate and globalize existing markets by developing a comprehensive procurement platform service, enabling business practices (Harvard Design School, 2000).

DATA COLLECTION

The real estate data were obtained in 2001 from a survey of companies in the U.S. and London/U.K. chosen to meet the following criteria: a) national coverage in terms of listings as a real estate agency; b) largest real estate companies in Boston and London in terms of broker numbers; and c) well-established research and investment departments. The population (all companies meeting the criteria) was determined through the Internet, financial/consulting organizations, local chambers of commerce and real estate organizations such as BOMA and NARET. This search led to the conclusion that the Boston population consisted of ten real estate companies: CB Richard Ellis, Spaulding & Sluye (Colliers), Prudential, Jones Lang Lasalle, Cushman & Wakefield, Grubb & Ellis, Insignia, Prudential, CRESA partners, and Meredith & Graw Inc. A similar search in London revealed a population of ten companies: DTZ, Jones Lang Lasalle, CB Hillier Parker, Lambert Smith Hampton, Healy Baker, Henderson, Prudential, Cushman and Wakefield , Coldwell Banker, and GVA Worldwide.

Probability sampling (DeVaus A., 1996) was selected because of its random sampling principle in a population and its effectiveness even in small population sizes (Lyberg L., and Kasprzyk D., 1991). Finally, representatives from four major brokerage companies in Boston (CB Richard Ellis, Spaulding & Slye, Prudential and Jones Lang Lasalle) and seven in London responded to the survey (DTZ, Jones Lang Lasalle, CB Hillier Parker, Lambert Smith Hampton, Healy Baker, Henderson, and Prudential). All these participating companies are among the most representative in terms of certified brokers and deals in each city, indicating that they are very knowledgeable about both the market as well as the best practices for a property transaction.

QUESTIONNAIRE DEVELOPMENT AND ADMINISTRATION

The questionnaire was designed to capture the views of real estate professionals working in traditional companies on how and if the use of Internet facilitates office market transactions.