Broker Involvement when Manufacturers Lease Corporate Real Estate

Abstract

It is increasingly common for manufacturing firms to lease properties, and they often seek the assistance of external brokers in the leasing process. The question that arises is how manufacturers currently involve brokers during this process and what should be considered when deciding this. This study aims to provide an answer by interviewing large manufacturers. There is limited research on brokerage of leasing in the corporate real estate sector. Here, theories of transactions cost economics and the principal-agent theory have been used to analyze this business relationship. To collect data, five interviews were held with representatives from manufacturers. The interviews revealed that broker involvement greatly differs between firms, however the critical aspects considered when choosing to involve brokers were similar. These aspects included the greater competence offered by brokers and information access compared to in-house personnel, as well as problems arising from information asymmetry between the parties. The decision to rely on internal expertise or brokers is typically based on subjective assessments and not on confirmed data, making it a judgment call on which option incurs the least cost of engaging a broker. Fully relying on external actors for managing the leasing process carries financial risks for firms. Therefore, it is advisable for firms to remain involved and employ a hybrid governance structure to access broker expertise yet maintain control over proceedings. Aligning objectives and facilitating mutuality in the broker relationship is critical, and outcome-based payments can support this. Measuring broker performance using KPIs (key performance indicators) can reduce suspicion, prevent opportunism, and promote collaboration.