This article is from the Australian Property Journal archive
TO keep up with the current challenging market, real estate businesses need better governance, systems and a renewed focus on talent retention to deliver consistent financial outcomes.
According to Macquarie Business Banking’s latest Real Estate Benchmarking Report, which surveyed 431 residential real estate agencies across the country, 71% of respondents recorded a flat or declining net profit margin in the 2023 financial year, with more businesses reporting declining year on year profitability since 2014.
“While real estate agents have seen their revenue heavily influenced by external factors, profit margins and performance remain within relative control, through cost management, efficiency and productivity monitoring,” said Domonic Thompson, national head of real estate at Macquarie Business Banking.
43% of respondents identified price discounting and competition as a key challenge over the year, with 63% identifying staff costs and 57% naming operating costs as key reasons for declining in profitability.
The real estate industry is still resilient despite broader conditions, with real estate businesses with property management offerings acting as a driver of competition in mergers and acquisitions.
“Property management portfolios continue to be a focus for growth and scale, which is being bolstered by acquisitions,” added Thompson.
“With 80% of agencies focused on property management growth, the key to success will be to shift away from price driven competition towards offering holistic value, nurturing existing client relationships, as well as future buyers, vendors and property managers.”
However, the industry is often still struggling to retain staff and attract new talent.
“With one in four people changing roles over the past 12 months, coupled with increased wages and operating costs, the industry is at a critical point, where agencies need to address staff challenges by building trust and respect,” said Thompson.
“Getting the people and culture balance can help differentiate an agency, drive better financial outcomes and enhance business value.”
Nationally, 25% of all agency staff reported to changing employers over the 2023 financial year.
This was most pronounced in property management, where 35% of property managers changed employers over the year.
“What we’re seeing is business owners needing to adjust business structures to run more efficiently in the current climate, or even taking a more active role in the business to prepare for anticipated economic headwinds, reduce associated staffing costs or optimise chances of success in securing property listings,” added Thompson.
“With merger and acquisition activity deferred through the pandemic period and market volatility, we saw an increase in business sale, exit and succession activity in 2022, however in our view the challenge for many is navigating a highly competitive landscape to transact.”
55% of real estate business owners said they are considering succession or reduction of operational involvement in their agency.
“The key to understanding and maximising business value includes improving business performance, supporting staff with strong processes and systems, offering opportunities to develop and grow within the business, and communicating a strong client value proposition,” concluded Thompson.
