For our latest in the Expert Insight series, we had the pleasure of chatting with Mr. Rodney Schwalbach, Principal of ESG Realty Advisors. Mr. Schwalbach started his specialization in 2005, as an associate with the largest and most respected locally-owned firms of commercial tenant representation in Austin. With more than 16 years of experience in the high tech industry and several years in the commercial real estate world, he provides exclusive tenant representation for office, retail and light industrial transactions, with a full understanding of what is important to business owners and general managers. Read on to find out more about the Austin CRE market, as well as the particulars of tenant rep business.
Q: Could you start by telling us a little bit about your background and why you chose a career in real estate?
After a sixteen-year career in Human Resources – wearing many hats for a number of high-tech companies, I found the most rewarding part of the job centered around site selection, lease negotiations, space planning, move coordination and facilities management for many of these companies. I was introduced to John Hanley and Carter King of Commercial Real Estate Solutions by a mutual friend and decided tenant representation was the right path for my future. After several years at CRES, I branched out on my own, creating ESG Realty Advisors – an Austin-based tenant rep-only firm, in 2005.
Q: What are your thoughts on the CRE market in the US today in terms of trends and challenges?
My sphere of influence includes small business owners either branching out on their own, new franchisees and existing retail business owners relocating or adding second and third locations in Texas. I find landlords in Texas are becoming more open to new concepts but are scrutinizing business plans and personal financials in greater detail. As the landlord’s market continues, it is harder for these start-ups and expanding concepts to secure quality space. Landlords tend to favor national credit tenants over locally-owned concepts, usually start-ups, for their retail spaces. The same can be said for my office and flex/light industrial clients. You cannot fault landlords, their property managers or their listing agents for wanting the best possible deal they can negotiate, but it is harder for the smaller business owners to get a foothold in a quality retail center these days.
Q: What differentiates the commercial real estate market in Austin from other major markets in the United States?
I have represented clients in Dallas, Houston, and San Antonio and have assisted in negotiating deals out of state for some of my multi-location clients. Austin is unique in that our vacancy rates for all products are low and in high demand. Finding retail space in downtown Austin, in the Mueller development or in the Domain is difficult. I’m sure the high-end neighborhoods in other major cities have similar issues, but Austin is a small town, geographically, compared to these other metropolitan areas. Austin continually ranks high in “where to live” and “wear to do business” reports. The climate, proximity to recreational areas (rivers, lakes and the hill country) and availability of a highly educated workforce contribute to the fact people want to live and work here – creating a need for more commercial space.
Q: How have you seen the industry evolve in the past years you’ve been involved in it?
I have seen co-working, telecommuting, big-box retailing and on-line stores have positive and negative effects on the commercial real estate industry since 2005. Clients have been influenced by these trends and adjusted their business models accordingly. I have placed smaller co-working concepts in areas not served by the larger name brand services. I have downsized office users as their productivity has improved by allowing employees to work from home. I have seen small retailers crushed by the big-box retailers undercutting their sales and have seen the same effect by on-line stores taking business from retailers. Yes, the industry ebbs and flows.
Q: Where do you see it going in the future?
I see much of the same over the next few decades in Austin: just like people move out to the suburbs, then back into town, business will change as well. Retail will adapt to the on-line and big-box competition, offering more incentives to gain back walk-in customers. Office users will continue to see the value in telecommuting, cutting down on the need for office space and the parking expense in the CBD. This will free up space for newer businesses to occupy.
Q: Is there something that you believe everyone in this industry should be working towards?
I would like to see more of an effort to level the playing field when it comes to new, small business owners. Just like “low-cost housing” in new residential developments, I would like to see a focus on locally owned start-ups in new commercial developments. As a consumer, it seems all new retail developments have the same nationally recognized tenant mix with a minimal local presence. As a broker, I find it hard to get the “new” small businesses in the newer, better centers.
Q: Are there any lessons from the past few years that you would impart as an absolute must for those looking to get into the CRE industry?
I see a lot of residential agents thinking they can just jump over to the CRE world. It is not the same business–there are no promulgated forms like for buying or selling a home. They seem to not understand the market and could easily lead their clients down a wrong path. I tell new agents they need to focus on one thing and not try to be all things to all people. It is hard to do this “part-time” while holding on to another job, or to a residential pipeline. Find a commercial broker that will work with you while you learn the commercial leasing process from sourcing referrals, generating reports, property tours, proposals – all the way to submitting the invoices. Learn the difference between office, retail and light industrial product in their area, then learn about the other areas of their city. In large brokerage firms, or in large cities, focus on one type of product at a time until you find your niche. It will take a few years to really get going – but it is worth the effort.
Q: What is your general assessment for the real estate market in 2020? Have you spotted some interesting market trends?
I believe Austin will remain a landlord’s market for several more years. There may be a correction, but as in decades past, Austin will be the last into a downturn and the first to rise out of it. As the city continues to expand, areas like Leander, Round Rock, Georgetown, Buda, and Kyle will also continue to see growth–specifically in retail as more residential neighborhoods spring up. I don’t see the traffic in Austin getting better any time soon so there may be a greater demand for companies to allow more employees to work from home.
Q: How has the evolution of online marketing impacted the commercial real estate industry?
Social media platforms and the growth of formal networking groups have really increased my exposure and the ability to reach decision-makers before they try to go it alone. When these clients hire my firm, they are well-informed on the local market and even listing details, which cuts my education process down quite a bit. With more and more brokerage firms posting their property listings on their websites and on listings websites, the general public has a way to gather competitive data but they do not get the whole picture. It is still necessary to have a broker on their side to explain the process and to compare and contrast the available property information. I don’t think commercial brokers will be replaced by online services any time soon.
Q: Is there something specific that you believe everyone in this industry should be working towards?
That is a good question. Being only on the tenant’s side, it would be great if landlords, property managers, and listing agents would keep their product availability information up to date and readily accessible. I spend a lot of time hunting down floor plans, operating expense numbers, leasing rates, zoning on particular centers, etc., when that same information could be made available on listings websites on the brokerage firm’s website. Granted, most of this information is available, if you dig for it, send texts and emails or make phone calls but not consistently in one place throughout the industry.
Q: Any other insights that you’d like to share?
Commercial Tenant Representation is a great profession. I’m glad I have the HR background but I should have started in commercial real estate right out of college. The satisfaction received from helping a business owner find commercial space and negotiate a good deal for their business, their dream, is very rewarding.