The third in a series of four
As in the physical disintermediation/reintermediation cycle, there will be winners and losers in the disintermediation/reintermediation of our service supply chain. So maybe we should take a look at the physical supply chain winners and losers to determine if we can see if your part of this service chain is in more peril of being cut than others.
I think we can all agree that the losers in the physical supply chain were the middlemen that never took physical possession of the inventory. As the manufacturer and the consumer, or their representative, the retail store looked for cost savings, so they started looking at the middlemen and their costs, and started lowering those costs, or if the technology was available, cutting those costs. If the manufacturer wouldn’t cut the middlemen out, then their products were higher priced and they lost market share to those manufacturers who would eliminate costs and middlemen.
In our business we have both physical and non-physical links in the supply chain in regards to the product, i.e. the space or building that the owner owns, and the tenant will lease. Another “physical” part of the business is the relationship of the service teams and the owner and the tenant. Let’s look at both of these.
As we look at the relationship of the physical needs of the tenant at the property, we will see that there is a need to have both technology and humans to take care of the physical aspects of the space the tenant is using. There has been a lot of new technology that assists the humans in taking care of the property and the tenant, but there hasn’t been anything that allows the property to completely run and monitor itself, yet. So, it seems that any link that services the physical aspects of the supply chain shouldn’t be in too much trouble at this time. Services like a management firm, a tenant improvement firm, and the supplier of these components. (Remember, this supply chain is a physical one and has or will be going through link chopping if it already hasn’t.)
The other part of this service chain are the relationship links. Let’s face it, there are way more service links in our chain than there have been in the physical supply chain. The reason this is of great importance to us is that most of the service links in the physical supply chain were completely removed, compressed or merged into another link.
Another component of these service links are that many are developed around relationships of the different firms or the different individuals at these firms. These relationship links, when we look at those same links in the physical supply chain, are at a higher risk than the links that have something to do with any of the physical components of the property.
Let’s look at the most extreme example of what could happen in the commercial real estate business in regards to leasing space, if the two true parties of the transaction to lease space were to do this on their own. They would be cutting all of the links in the service chain and hiring the service providers they need to transact. Let’s make this as simplistic as possible. Let’s say you have a tenant that needs 100,000 square feet of space, and you have an owner that owns 100,000 square feet of space. Here is one way that the industry works.
Generally, a tenant of this size will be represented by an expert in the type and location of the product the tenant will need. This representative and the tenant will then complete their team to look at and lease space in the time requirement they have. On this team there may be lawyers, for both the tenant and the representative, space planners, or if they are looking at a new project, an architect, space planners, legal advisors for the development, zoning attorneys and all of the services needed to build and prepare the tenant to use their space. This may or may not include a separate owner if the tenant doesn’t want to own and maintain the asset.
As you can see with this example most of the services are needed in this transaction. The only issue that can be raised when looking at the chain, is how these different service providers were able to get to work on this project. When you look at this, it seems that the tenant or their representative put most of this in place. If the space would have been in a property that was already developed, it would have been a mix of relationships of the tenant, the owner and their representatives.
So how will technology really be able to cut these service links if we really need to use the different links? If they do, how will they monetize this technology?
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