Brokers and markets: an analysis of transaction data for London and New York

As is well established, commercial real estate is a highly specific asset: heterogeneous, indivisible and with less information transparency than most other commonly held investment assets. These attributes negatively affect the liquidity of the asset and encourage the use of intermediaries during acquisition and disposal. The cost of intermediation, or brokerage, is the single largest non-tax charge to the investor when acquiring assets. Despite this, there is comparatively little work dedicated to this aspect of the commercial real estate investment market in the extant literature. Furthermore, there are few attempts to explain the use of different brokerage models in different markets. Therefore, to better understand the factors that affect broker representation, this study offers the results of a detailed analysis of 12,932 commercial real estate transactions in London and New York City from 2001 to the end of 2011. This data is provided by Real Capital Analytics and covers more than $500 billion worth of investments in this period. The study seeks to compare brokerage trends as observed in these two leading investment destinations. The research tests whether the decision to invest with broker representation varies by location, market, investor and asset characteristics. The results show that broker representation varies by and within locations, with purchasers in London far more likely to be represented by brokers as compared to those in New York.