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Real Estate Industry Outlook

Natalie Furrier
BCOM 214
April 30, 2020
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Natalie Furrier
BCOM214
Christina Perez
21 April 2020
First Draft: Research Report

Data on the real estate industry has been compiled to provide more content for clients to
interact with on the corporate website. Providing more quantitative and quantitative results to
clients will decrease in the amount of time that consultants are obliged to educate their clients
on the market analytics, in turn allowing more time to discuss the individual's specific
investment strategy.

Target Demographics

The target market of real estate is wide-ranging, with significance found in only marital status
and age demographics of consumers. The target market for real estate ranges based on the
amount of disposable income with married couples accounting for an estimated 54.9% of the
industry revenue and 18.3% of industry revenue single individuals (O'Connor, 2020). Due to the
vast market of buying a house, the direct demographic of real estate and real estate investing is
very large and mostly dependent on other factors.

Demand Determinants

Mortgage Rates

The 30-year mortgage rate is the most common type of borrowing performed when investing in
residential real estate. According to Hiner (2020), the 30-year mortgage rate is expected to drop
dramatically, promoting the total industry increase in revenue. The acceptance of lower rates of
mortgage payback, the industry can expect a dramatic increase in demand, and therefore profits.

Interest Rates

Interest rates influence demand in the market, with more significant interest rates deterring
consumers away from residential investment due to a higher cost of borrowing. Hiner explained
that the current market performance is promoting buying through low-interest rates and easier
access to credit and is predicting to remain low for the next five years (Hiner, 2020). With
particularly low-interest rates to continue to be expected, real estate investment is promoted
due to the more confidence in the venture.
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Top Competition

The amount of small real estate proprietorships dominates the real estate industry, according to
Madigan, with only four significant businesses obtaining relatively large amounts of the market
share. As seen in figure 1, the most prevalent real estate companies are United Rentals Inc.,
Realogy Holdings Corp., CBRE Group Inc., Avis Budget Group Inc. (Madigan, 2020). Due to the
barriers of the entrance being relatively small, this has created a widespread of investors in the
real estate market.

Figure 1: Major Contenders Market Share

Figure 1. (Source: https://my-ibisworld-com.ezproxy2.library.arizona.edu/us/en/industry-

specialized/od5572/industry-at-a-glance)

Figure 1- shows the market share of only four top compeitiors within the real estate industry.

Influence of Technology

Real Estate markets have and will continue to experience change due to the lowering of fixed
cost experienced through the ease of technology. The data-generated approaches of AI and
algorithms eliminate frustration for the seller, completely changing the average market to
maximize convenience. Some practices used in agency franchises have increasingly used mobile
applications, interactive videos, and tablet-based showing and listing presentations to improve
the customer's experience (Hiner, 2020). According to a report generated by Mintel, "Soon, in
order to shrink the margin of error and loss of investment, these algorithms will likely become a
matchmaking tool to link up potential sellers with potential buyers so that the process is
expedited on both sides—including the type of 'flipping' the company must do to make the
home good enough for the buyer" (Real Estate Algorithm, 2019, para. 4). With the increasing
use of technology, real estate revenue is expected to increase due to the increase in efficiency
between agents and clients.
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Future of Real Estate

The future of industry performance can expect an increase in revenue due to the trend of the
industry parallel to in relation to GDP until 2021. According to Mintel Financial analyst Chris
Shandle, before the end of 2021, the US will experience another recession. (Shadle, 2020, p.
11). However, figure 2 shows the predicted total industry revenue forecast to rise at a rate of
1.4% to $172.2 billion from 2020 to 2024, which is 2.8% lower than 2014-2019 (O'Connor,
2020). Figure 2 describes the future decline expected in the industry due to predictions of the
next bull market. Figure 2 describes the future decline expected in the industry due to
predictions of a future bull market.

Figure 2: Real Estate Industry Performance

Figure 2. (Source: https://my-ibisworld-

com.ezproxy2.library.arizona.edu/us/en/industry/53121/industry-performance)

Figure 2- indicates the future real estate revenue is predicted to decrease, lowering rate-of-
return on investments.

Impact of COVID-19

The impact of the Coronavirus caused tragedy for the entire world as people's lives have changed
in ways never thought before. No longer able to meet, socialize, work, and shop like we used to,
the real estate market has experienced a negative impact through the impact on the economy.
"Due to the forced shuttering of businesses and rising unemployment, residential and
nonresidential renters alike do not have the cash flow to afford rent and other debt obligations.
Failure to pay will result in evictions and foreclosure, greatly weakening sector performance due
to a decline in overall demand" (Madigan, 2020, Coronavirus Update). The future of borrowing
and lending could meet a point of change for the future as, expenditure decisions have changed
do to the focus of central cash management (Gujral, 2020). The loan and collateral debt predicted
to have a steady growth of 1.6% in the US (Savaskan, 2020). The crisis caused a decline in the
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total performance of the industry by disrupting the standard ways of business and declining the
rent revenues due to the Cares Act of 2020 that allows tolerance on their rent obligations.

The main points gathered from the report allow for more educated investment strategies to be
made when considering the real estate market for healthy competition, future growth, and broad
demographic. This report outlined investment in real estate through detailing Target
Demographics, Demand Determinants, Top Competition, Influence of Technology, Future of Real
Estate, and the Impact of COVID-19. By increasing the amount of content in a means to increase
the likelihood of clients investing in the real estate industry through the ease of access to
information.
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References
Gujral, V. P. (2020, April). Commercial real estate must do more than merely adapt to
coronavirus. Retrived from McKinsey Insights.

Hiner, J. (2020, March). Real Estate Agency Franchises. Retrived from IBISWorld.

Madigan, J. (2020, April). Real Estate and Rental and Leasing in the US. Retrived from
IBISWorld database.

O'Connor, C. (2020, March). Real Estate Sales & Brokerage in the US. Retrived from
IBISWorld database.

Real Estate Algorithm. (2019, February). Retrived from Mintel database.

Savaskan, D. (2020, January). Real Estate Loans & Collateralized Debt in the US . Retrived
from IBISWorld database.

Shadle, C. (2020, January). Consumers and The Economic Outlook. 10-11. Retrived from Mintel
database.