In-Depth: Consulting: who will stay?

Developers have also became more serious about analysis, and want to receive quality information, starting with a general review of the segment of the market, and finishing with recommendations on the future plans. As has been revealed, not all consulting companies can satisfy the increased demands of clients.

Rapid development of the consulting services market in the real estate sphere began in 2006 because of active development and plans to carry out IPOs. For this purpose developers had to follow a tough path, including gaining a solid number of projects. For consulting companies this meant an unbelievable growth in demand for analysis of sites, valuations of projects, development of concepts, etc. To cope with their clients’ requests and to deadline, and even to earn as much as possible, consulting companies needed to significantly increase their staff of advisers and analysts, which, naturally, influenced the quality of work.

Probably, it would have continued the same way if not for the financial crisis in western markets in the second half of 2007. Banks became more cautious in financing the construction of Russian projects. Developers analysed the reports of consulting companies more carefully. There was a reconsideration of not only large projects and opportunities for developers, but also of the investment appeal of the segments. Companies were in a hurry to carry out IPOs, and therefore many projects were overvalued, for example in the warehouse and retail real estate segments. Following this analysts and advisers were compelled to be more careful – nobody is interested in the production of reports on an industrial scale anymore. The consulting market started changing from conditions of "quick and many" to "quality and responsibly".

Following the increase in requirements to their work it is now much more complex for advisers to win a tender. Therefore participants without experience began to be washed away from the market. Of course, to be safeguard their positions they could start dumping, but this is not the way out of this situation. Quality improvement in the market has begun and this is good. The number of weak companies has fallen, and the allocation of universal and specialized companies has begun.

To exist companies must now universally offer a full list of services, and have a big team of experts and a high level of responsibility. At present the number of such players in the market is minimal. In terms of specialized companies, a share of them provide services on carrying out analytical research in certain segments of real estate, while others offer consultations on planning/design decisions or are engaged in the development of marketing strategy. Often such companies choose a direction of a higher level, and consult on the development of large areas where foreign experience is necessarily considered, creative ideas are necessary, and also the relationship with contractors is stipulated.

Regional companies that work in specific local markets may also be considered as specialised. The very first companies of which, probably, will become the basis of consulting services in the regional market if they are able to completely satisfy the requirements of customers.

The criteria of choosing advisers often changes: they partially consist of criteria accepted before 2006 (brand, experience, understanding of the market), and also new criteria - the choice between two kinds of consulting companies (universal and specialized). But responsibility is still the most important: it is important for clients to know, who will bear responsibly at the closing stage of the services.

Tendencies

I. Increase in time period for carrying out tenders. Previously tenders usually lasted a month, now cases of about six months are known. This is connected with more cautious investments and indistinct specialization of consulting companies. The customer also aspires to recheck the adviser one more time. Not all players maintain similar deadlines. The market is changing and the business model created for a fast input onto the market, a fast sale and the performance of services, is not capable of bearing the changes. The business model either fails, or is reconstructed.

II. Responsibility. Importance of responsibility carried by the consulting company increases. At some point the responsibility for consulting services rests on the shoulders of the partners of the company that are responsible for providing quality services. If the company is young and doesn’t have great experience, it will get washed away from the market.

III. Crisis of ideas. A crisis of creative ideas for developers and investors who work hard in the market, led to the fact that in 2006-2007 many multipurpose complexes and skyscrapers appeared, and cluster projects and new kinds of housing were developed. Now we understand that many formats do not meet the expectations of investors, and therefore they are being re-thought. Ideas which can be really thought through and evaluated that correspond to changes in the market are necessary. Developers will be prepared to pay advisers significant sums for this. The 2008-2009 period enables consulting companies to choose a specialization and for some of them to become leaders in the market.

Forecast

In 2010 the market of consulting services in the sphere of real estate will stabilize, will become clearer, the positions of the leading companies will be amplified and the quality of services will be raised. There will be a clear split of players by specialization. Companies will be more competitive in size, brand and experience. No more than 10 universal consulting companies will stay in the market, 3-4 of which will be Russian. There will also be up to 30 specialized players, who will differ by their small size, creativity and significant experience in the given sphere. At the same time entering the market will become more complicated for new players as the level of existing companies will become higher. But it will be much easier to choose among consulting services.