IBIS World and Macquarie Bank have both recently released updated research and benchmarking information on the Real Estate industry. Leased Magazine takes a look at the findings presented, including how economies of scale, productivity, technology, overseas investors, and commercial opportunities can impact the success of your property management business.
Based on everything that has been written recently, there can be no doubt that property management will play a greater role in the success (and in some cases survival) of real estate businesses over the next few years. The perceived value of having a strong property management division and a higher number of properties under management can be seen in the growing trade in rent rolls and the higher income multiples being paid for them.
Peter Thomas, CEO Stockdale & Leggo, said recently, as part of a Principal Magazine roundtable discussion, that his group’s key strategy is to “buy as many rent rolls” as it can.
In late December last year, Charles Tarbey, chairman of Century 21, acquired Wentworth Holdings, one of Australia’s largest property management groups with the promise to make Century 21 a “property investor’s paradise”.
And in June this year Knight Frank launched a new residential property management team to target investors buying apartments in the booming Brisbane CBD and city fringe market.
Limited Traditional Revenue Growth
Building and growing property management services will be especially important as overall real estate revenue growth struggles to keep pace with inflation over the next half-decade.
The latest Real Estate Agents in Australia Industry report from IBISWorld forecasts only limited revenue growth for estate agents over next five years, although the picture is an improvement on the difficult years post the global financial crisis.
Following declining revenue growth of 1.1% from 2007 to 2012, IBISWorld forecasts annual growth of 1.6% for the next five years – about the current rate of inflation, reaching $9.8 billion by 2017.
Collectively, Australia’s 33,500 real estate businesses are forecast to earn $9 billion in 2011-12 with profits of $632 million – a profit to revenue ratio of just 7% – equating to average profits of $19,000 per agency once wages have been paid.
Much of this limited growth is expected to come from commercial property transactions – not residential sales – with IBISWorld reporting that estate agents will come under greater pressure from vendor to reduce their commissions “as they pull out all the stops to attract potential buyer interest”.
“Most notable is the fact that vendors have succeeded in pressuring agents to reduce their commissions, and as a result are reducing the profitability of the industry as a whole,” warns IBISWorld.
Property Management as A Growing Part of Revenue
Within this picture of limited revenue growth, IBISWorld estimates that residential property management and residential leasing and letting will account for a combined 12.6% of industry revenue for 2011-12.
When this figure is combined with revenue from non-residential property management activities (7%) property management as a whole, accounts for roughly a fifth of all revenue earned by estate agents currently – a significant proportion.
It is likely to grow to a higher proportion of revenue, when you consider that 30% of the Australian population rent according to census 2011, up from 28% in the 2006 census.
The latest research bears this trend out. The 2012 Macquarie Residential Real Estate Benchmarking Report, which surveyed 416 estate agents across Australia, found that property management is a growing share of the revenue pie, with rent rolls accounting for 42% of total revenue in the prior 12 month period compared to 36% in 2009 and 29% in 2007.