In-Depth: Games of ‘The Big Four’

A Bit of History

The companies that make up the Big Four were founded almost simultaneously – in the years 1993 and 1994. They were set up in the way most consultancies are usually founded – as privately-owned partnerships comprising two or more partners.

Of course, in those days they were a far cry from what they are now. For example, they were not international firms, their “international” status being confirmed solely by the presence of expatriates on the list of partners; besides, they had different names then.

Interestingly, alongside them, other firms – analogous to the Big Four – were active on the market, such as Green & Green Realty, Intermark and others. Many of them still operate in the same form as they did a decade ago, while the companies who made up the Big Four did not stop in terms of development and grew as rapidly as the market and their own potential would allow.

Having survived a number of changes such as mergers with other similar firms (the future JLL and Colliers) and changes in the make-up of partners (virtually all four of them) in the years 1995-1997, they embarked on a path of rapprochement with major international firms.

Thus, by the crisis year of 1998 all the future Big Four firms had their names supplemented with the words “…in association with…”, only preserved nowadays by Noble Gibbons / CB Richard Ellis.

Then, the country saw a couple of years of post-crisis uncertainty and then market development proceeded in the form typical of any developing market: the market grew, attempts to develop the related sectors were made, some succeeded, others failed; geographical expansion began and competition grew stronger.

Curiously, throughout all those years there were plenty of other firms operating in the same line of business quite successfully on the market. Yet, for certain – both objective and subjective – reasons the Big Four firms felt quite comfortable, if not completely secure. Objectively, the market was focused clearly on Western tenants; subjectively, as we all know, we have always perceived everything that originated from the West as something indisputably better.

Variety of Interpretations

Attempts towards classification have been made in each sector of the market. Each has its own Big Three, Big Four or Big Five.

It is difficult to say who coined the term “The Big Four” in commercial real estate. But one thing is for sure: at the time those four firms came into being there was no talk of any kind of alliance whatsoever, just as there is no talk of it today.

Of course, all of the Big Four firms are quite large and control a considerable share of the class A property deals in Moscow. But after a closer look they differ greatly from one another. For example, it is commonly believed that one of the fundamental things they have in common is their “internationality”, but even in this matter their policies differ.

Actually, the Big Four represents a wide spectrum of corporate entities, including a) a Moscow office of a U.S.-British firm, b) an international network of privately-owned firms working under a single franchise deal c) a private firm co-owned by a group of expatriate partners and a Russian bank, operating “in association” with a large corporate network. Quite a mixture, indeed.

But even if we agree – with some reservations – that the Big Four comprises international companies accounting for a large share of the class A and B property markets, such a classification still has it faults. For example, what about Knight Frank – a company that meets all the technical criteria and deserves a place in the Big Four, or rather the Big Five?

After all, even data that are not classified as confidential – such as the number of projects the company is working on, its leading positions in certain segments of the property market or the number of employees – show that Knight Frank should be included in the Big Four. Or what about GVA Sawyer, which has been operating in Moscow as long as the Big Four firms have, if not longer, and is also associated with a global network, GVA Worldwide?

What about DTZ, which, incidentally, has been working in Moscow for nearly ten years, just as long as all the others? The company’s corporate structure and foreign ownership is similar to, say, that of Cushman & Wakefield, while in terms of its market share and the real state of affairs it is keeping up with the Big Four, as well as with most of the Russian property consultants.

As a matter of fact, technically the unification of the Big Four has never actually happened. The term was introduced for the sake of convenience by descriptions and classifications. After all, even the size of the widely discussed market share is set entirely on the basis of one’s feelings and established opinion.

It is highly unlikely that someone is able today to say they know what share of the market is controlled by which consultancy. And this is understandable as the market is still far from being transparent.

Even the most professional analysts cannot say for sure that they know the precise number of deals made by this or that firm. There are a number of reasons for that; firstly, most firms keep their turnover strictly confidential, secondly, certain deals are never made public.

In the media and advertising literature most companies tend to publicize their large-scale class A projects, critical for shaping their image, and by no means those that simply bring good returns.

At times, some of them overestimate their achievements, without even having to distort the facts too much. For example, merely ascribing certain deals to a certain property sector, say, office real estate, when in truth, those deals have little to do with office real estate.

Admittedly, the companies exchange data on executed deals. However, such an exchange is practiced only within the framework of the Big Four itself (for some reason though, the ABN Realty company used to belong to that pool for a while, but in the light of its recent break-up it is not clear what will happen next). As to what happens outside the Big Four is a mystery to everyone, including the Big Four firms themselves.

The only thing that formally keeps the Big Four together is the Moscow Research Forum. The MRF is, in a sense, a virtual concept as it does not represent any structured body, but is held in the form of annual meetings between research analysts of those companies where they exchange market data.

The most significant and, so far, the only outcome of those meetings known to the outside world is the office property classification adopted by the MRF in 2003 and widely applied on the market ever since despite lots of criticism and calls for its revision.

The data exchanged at MRF meetings is confined to total figures, as none of the firms would agree to share information on their new projects with rivals.

Other departments of those firms do not practice such meetings for understandable reasons. They are rivals and there is nothing for them to discuss because competitors can benefit from any data disclosed. It transpires that the only thing that keeps the Big Four members together are the forums held 12 times per year by their research analysts.

Can those firms claim the market leadership today? To answer that question correctly it would be interesting to compare their take-ups with those of major Russian commercial property agencies commonly listed as “others” in all sorts of ratings and tables. There is a feeling that such results could bridge the gap, adding stable domestic firms to the list of market leaders.

Is There Room for Newcomers?

The state of affairs in each of the segments of a developing market is constantly changing. Promising lines of business, commercial real estate being, undoubtedly, one of those, always attract new players. In the past two or three years the market has been changing more and more rapidly.

The alignment of forces began to change as the gradual break-up of Penny Lane Realty resulted in the emergence of Paul’s Yard and then Leeds Property Group. The market also saw an advent of new firms such as Dominique Renard or Prime City Property, still obscure and quite ambiguous in terms of their potential.

Nobody is certain about the standing of Swiss Realty, a formally foreign firm that swiftly broke into the market having publicly declared its ambition to conquer it, but that still failed to prove it deserves a leadership role.

Exclusive rights to prime properties have ceased to be a prerogative of the market majors. These days, a number of consultants operate in the same conditions as the Big Four firms; DTZ and Swiss Realty are working on their projects on a co-exclusive basis, together with Colliers International (Northern Tower, Moscow City and an Impexbank building on Smolensky Boulevard, respectively).

Precedents where such companies secure fully exclusive rights have already been established. The latest examples are the Northern Lights project by Paul’s Yard and Neglinnaya Plaza by GVA Sawyer.

What has brought about those changes? While the market was still being formed the key value a new company could offer was Western know-how. Today the situation has changed. Expertise is still highly valued, but while such knowledge used to be scarce and only Western firms shared it, these days it is available in Russia, as well.

Today, Russia has its own experts deeply versed in market techniques. Moreover, such experts go further combining the advantages of a Western approach with the specifics of the local market, just as it should be and is practiced in other countries. This, incidentally, enables them to offer quality services to domestic clients, as well as to foreigners.

What Tomorrow Brings

Forecasting changes is quite difficult, and, perhaps, unnecessary, so let us leave it to the analysts who always speak about new trends and then explain why their forecasts fail to come true.

For the time being, the following is a sure thing: the commercial property market has undergone considerable changes. Traditionally, we are still using the Big Four term, although in truth there are hundreds of investors, developers or tenants active on the market, but the only ones to benefit from its use are the four major consultancies.

But consumers these days need something drastically different from what they were offered ten or even five years ago; the clients themselves have changed. Few attach much importance to the number of offices a consultant runs around the globe or the personnel it employs. Of much more important is its ability to understand the client’s needs.

Besides, there are new market players who are slowly but surely biting off their own share. And if we cannot do without classification altogether, the time has come, by compiling the new rating, to focus on concrete results and objective figures, not on someone’s convenient yet outdated judgments.