A continued drop in homeownership will increase rental rates, boosting industry demand
Los Angeles, CA (PRWEB) October 09, 2012
Historically, the Property Management industry has been immune to economic downturns. According to IBISWorld industry analyst Dale Schmidt, “During such times, industry clients often lower costs by outsourcing property management duties to industry operators.” But outsourcing failed to save the industry during the Great Recession in 2008 and 2009 largely because the recession and credit crunch originated within the real estate sector. According to a report from PricewaterhouseCoopers and the Urban Land Institute, commercial real estate values have fallen 40.0% since their mid-2007 peaks. This dramatic decline represents the worst drop in values since the Great Depression, even eclipsing the 1990s savings-and-loans crisis. As a result, industry revenue is expected to decline at an average annual rate of 3.5% to $48.3 billion in the five years to 2012, even with 5.5% growth in 2012. In addition to revenue, the number of firms is expected to decline at an average rate of 2.3% annually to 150,254 during the same period as operators consolidate operations to improve margins and diversify risk.
Before the subprime crisis, revenue was increasing because the industry benefited from the real estate boom, and revenue reached $57.6 billion in 2007. “At that time,” says Schmidt, “residential and commercial lessors raised construction levels to cash in on the dramatic rise in property values.” The rise in construction supported industry growth as more real estate requiring property management services became available. Real estate owners also began to outsource property management services at higher rates to reduce operational costs and liabilities.
The US Property Management industry is mainly comprised of small independent lessor firms, with over 90.0% of all industry operators employing fewer than five people and with the largest four companies comprising less than one-fifth of industry revenue. The industry is highly fragmented because participants must have strong contacts and personal knowledge of local markets. Additionally, the majority of industry costs are variable or semi-variable, so it is harder for firms to gain economies of scale in comparison to smaller counter parties. At the same time, the industry is characterized as having low barriers to entry and capital costs, which makes it easier for smaller firms to enter the marketplace. Despite low concentration, industry participants continue to consolidate operations. Customers in the non-residential market are increasingly looking for firms that offer a full range of services across a wide geographic area. As a result, a number of large mergers, acquisitions and strategic alliances have taken place. At the same time, the number of corporations is increasing, as smaller firms move away from the partnership structure during the expansion of services. This development has motivated a number of large mergers, acquisitions and strategic alliances in this market segment, including foreign acquisitions and strategic alliances. In addition, there has also been a trend for larger firms to move away from partnership to corporate models, particularly as firms expand.
Benefiting the industry, the US homeownership rate has steadily declined, thus increasing the number of renters. Declining homeownership will support industry growth, since 63.8% of revenue is associated with residential rental-property management. Also, as the economy recovers, unemployment will decline, discretionary spending will increase and demand for residential and commercial real estate leasing will improve. Given these positive conditions, 2013 industry revenue growth is expected to match growth in 2012. Over the five years to 2017, revenue is projected to rise at a steady and strong annual rate.
For more information, visit IBISWorld’s Property Management in the US industry report page.
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IBISWorld industry Report Key Topics
Establishments in this industry manage residential and non-residential real estate for others. Property management responsibilities relate to the overall operation of the real estate asset including leasing, maintenance, rent collection, trash removal and security.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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