The Future Of The Property Management Industry For The Next Five Years | Real Estate Management
The property management sector encompasses two primary markets: residential and commercial. When one market sees an uptick, the other tends to decline. However, a noteworthy shift is underway, with an anticipated 7.5% Compound Annual Growth Rate (CAGR) for residential and commercial property management services over the next five years.
Introduction
Despite challenges posed by the pandemic and workplace closures, the property management industry has consistently grown in the past five years. Unlike some sectors, property management companies were not severely impacted by technology issues during the pandemic due to their prior digitization efforts.
Amidst ongoing inflation concerns, a rise in interest rates affecting home sales is expected to boost the demand for residential property management services. Simultaneously, the commercial sector is poised for growth, driven by a new business surge and expansion.
Facilities management, particularly in safeguarding investments through preventive maintenance and emergency response plans, is gaining prominence among property owners. Additionally, the emergence of Build to Rent (BTR) neighborhoods, offering professionally managed single-family residences, presents a new market opportunity for the industry.
The Present State of the Property Management Industry
Both residential and commercial property management share standard services, such as marketing vacancies, scheduling property tours, rent and deposit collection, accounting, lease negotiations, and maintenance coordination. The key distinction lies in lease negotiations, where commercial leases may involve remodeling to meet specific tenant requirements.
Revenue Trends in the Property Management Industry
The U.S. property management market has witnessed consistent growth since 2009, with a projected annualized revenue increase of 1.2% to reach $110.71 billion in the next five years. Industry profit is expected to rise, constituting 11.6% of revenue in 2023, up from 8.8% in 2017.
While the number of property management companies and employees continues to grow, the pace is slowing. Economic uncertainties, rising interest rates, and upcoming mid-term elections are prompting a cautious approach among companies before expanding.
Revenue Breakdown and Market Share
The property management industry remains decentralized, with small, localized operations dominating, generating nearly 90% of industry revenue. Residential services account for 56% of customer demand, while the commercial sector contributes 44%.
Services Segmentation
Residential properties cater to individuals and families seeking rental homes or apartments, while nonresidential properties serve companies needing office, commercial, or industrial spaces. The fastest-growing sector is facilities management, covering rugged and soft property maintenance services.
The Future Of The Property Management Industry For The Next Five Years
Property managers have been resilient to the digital shift accelerated by the pandemic, benefiting from their pre-existing digital infrastructure. Outsourcing services are expected to expand, potentially reducing operating costs and increasing profits. The focus on facilities management, especially emergency response, is increasingly crucial following recent weather events.
Trends Influencing Property Management Business Growth
Despite the projected 7.5% CAGR, property managers should remain vigilant to external economic factors, including inflation and higher interest rates. The cooling housing market, marked by declining new home sales and escalating prices, may redirect demand toward residential property management services.
Commercial demand for office spaces has risen steadily in recent years, fueled by a significant increase in new businesses. The Build To Rent (BTR) model, offering the flexibility of rentals within professionally managed single-family home neighborhoods, is gaining traction as an alternative to traditional homebuying.
The increasing demand for facilities management services, mainly preventive and reactive maintenance, is a notable trend. Property owners seek a comprehensive approach to maintenance, with on-demand capabilities for disaster relief and emergencies, creating opportunities for companies with such stuff.
