The good news: the recession is now a decade behind us and markets are clearly recovered. Real estate is doing well, buoyed by technological innovation and economic growth. Commercial real estate brokerages currently have an optimistic outlook for their future, but that doesn’t mean they aren’t facing some challenges to how they operate. What are firms facing over the next twelve months?
1) Maintaining Profitability
The good news is over 90% or real estate firms expect their net income to increase or at the very least remain the same during 2018, based on the National Association of Realtors survey of 6,000 real estate member executives. At least 62% of residential real estate participants expect their revenue stream to improve and stay profitable.
While brokers may expect a positive revenue stream in 2018, some very real impediments lie on the road ahead. Success has to do with staying on top of market trends. As learned from the recession, the ability to diversify income streams if activity drops in one sector is key to surviving leaner times. Even now, low inventory is a hurdle with some markets. As median sales prices increase, the reduced sales volume may not be enough to sustain revenue. While times are good, brokers are examining new ways to add value to their business and diversify their profits.
2) The tax bill
The big question is will the tax bill lead to growth as political leaders claim? And, if it does stimulate some economic growth, how big will those gains be and will they last moving forward? Yes, the reduced corporate tax rate will increase income, but steadily rising mortgage rates could temper existing home sales and new construction. The answer may hinge on how much the tax bill stimulates consumer and corporate spending.
3) Online/virtual brokerages
The traditional brokerage may feel under threat from non-traditional market participants, which increased 43 percent in 2016. The NAR survey results show that half of the firms expect increased competition from virtual brokerages. That’s compared to 15 percent expecting more competition from traditional brick and mortar firms. The key to succeeding, whether a virtual format or a more traditional format, is about providing excellent value in service. Focusing on local expertise and delivering wise advice will help agents rise to the top.
4) Staying relevant in a tech-enabled world
Related to the increase in online brokerage activity, the role of a real estate agent and broker is shifting. An HSBC study found that 86 percent of recent homeowners turned online to search for properties in local pricing. This reflects other surveys and trend studies by the NAR that prove buyers research online long before contacting a real estate agent. Indeed, some buyers are asking, “do I even need an agent for a real estate transaction?”
Technology is how real estate agents and brokers stay relevant. We justify the commission and our services by presenting information our clients may not have access to. Technology is also going to help agents and brokers manage their time better. New automated services free more time for personalized customer service. Brokers tasked with proving their relevance to the modern consumer must find new ways to embrace technology inside their business.
5) Staying competitive with new technology
We love the explosive tech development inside real estate. New artificial intelligence platforms help process our data, leading to deeper insights into market trends and consumer behavior. The Internet of Things (IoT) helps property managers and owners reduce operating expenses, increase building efficiency, and attract tenants. Virtual and augmented reality (VR/AR) is adding the wow factor to the buying and selling process. In fact, AI ranked at the top of Gartner’s Top 10 strategic technology trends. The next two slots were about “intelligent” apps and things, followed by VR/AR tech at number four. Blockchain, a technology poised as the next big real estate disruptor, ranked sixth.
These challenges illustrate technology will be the driving factor in the coming decades. Real estate brokers and agents need to embrace new innovation to stay competitive, deliver customer value, and increase profitability. While legislation is always prone to change and markets will always fluctuate, the key to overcoming challenges is embracing new solutions and innovations launching in the industry.