NEW YORK CITY—The “institutionalization” of commercial real estate as an asset class has multiple implications, says Brandon Weber, cofounder and CEO of Hightower, a leasing automation provider headquartered here. Among these is consolidation among services firms, in part to support the farther-reaching demands of their biggest clients. Within the past several weeks, GlobeSt.com has reported on the pending merger between DTZ and Cushman & Wakefield, and Sun Life Financial's purchase of Bentall Kennedy.

“A NAIOP report says that in 2015, we're expecting to crest 10% for real estate as a percentage of any institutional investment portfolio,” says Weber, formerly a first VP at CBRE who left in 2013 to co-found a company that now counts both institutional owners and major services firms among its clients. “Fifteen years ago, it was 2.1%. This means we have much, much greater pools of capital chasing commercial real estate, much larger aggregations of real estate on the ownership side and much larger funds being raised. This is having a whipsaw effect on the services side.”

The major global services firms, he says, are “trying to support the institutional owner side: the J.P. Morgans and Blackstones that have much larger, far-reaching portfolios, more complex and geographically more diverse. On the corporate side, it's amazing to see how much commercial real estate as a core competency is being wholly outsourced by the major corporates. They're outsourcing pretty much their entire soup-to-nut real estate services.”

In order to commit for these exponentially larger assignments, service providers must achieve “a level of scale and sophistication across not only service lines but also geographically. They need to have boots on the ground in every major market in every major country, because Microsoft or Johnson & Johnson does.” The result is “massive consolidation,” says Weber.

Although such consolidation is “mainly upside” for the services firms, there are potential drawbacks. “You've got this massive collision of cultures that are very different,” Weber says. “The fallout of that can be painful.” There's a risk of services companies “buckling from the levels of complexities that they're taking on. These are companies that built internal systems and processes that worked pretty darn well when they were a regional or national brokerage firm. There can be inefficiencies and friction when you're a global services provider trying to consolidate and capture data across multiple service lines.”

Even so, Weber says he's not yet worried about consolidation reducing clients' choices in the marketplace. “Despite all the consolidation, we still have quite a long way to go,” he says. “If you look at the commercial real estate services industry, it's still incredibly fragmented. It's a $150-billion industry, and maybe 15% of it is made up by the top four or five players.”

For clients, the need for services providers to differentiate themselves helps in the decision-making process. “We're entering the most competitive environment I've ever seen in commercial real estate services,” Weber says. “The stakes are higher than they've ever been before, because the requirements are now portfolio-wide, not just one-off deals.” The result is “a net positive” for the services firms' clients.

“One of the great shifts we're seeing right now is that commercial real estate owners and service providers are realizing that they're in the data business,” says Weber. “They've got to figure out how to harness that data, create insights out of the data and present those insights to their clients in a more sophisticated way than their competition. Scale is a huge component of that; the stakes are higher when you're a global business with 20,000 brokers, generating billions of data points every year.”

The next three years, he predicts, “are going to be pretty transformative in terms of how we see our businesses.” That's on account of “a collision course between the old ways of doing business and the new needs, and we're seeing new opportunities for technology to help rethink how we're doing things.”