The end of the financial year-end provides a perfect time for any company or industry to reflect on the year just completed, and look ahead to the forthcoming year. So I thought it would be of value to undertake such an analysis for the New Zealand real estate industry.
In the financial year ending March 2018 exactly 73,000 residential transactions were completed by the industry, with a turnover of close to $48.5 billion. This I would judge to be called a ‘good’ year by the industry, at least if you consider the last 10 years or so – by no means the best year but equally far from the worst. That latter record would undoubtedly be the 2009 financial year when just 55,000 transactions were completed for a turnover of $22.4 billion. Interestingly the best year of the past decade or so would be last year; for although slightly fewer transactions were completed in 2017 than 2016, the transaction turnover hit a record of $55.2 billion from 87,630 transactions.
The real estate industry is large – employing just over 15,000 individuals who as recorded by the Real Estate Authority (REA) held active licenses. Supporting these active agents would be almost as many in support roles; as well as those in service industries related to the process of real estate sales.
The industry continues to grow and attract new individuals. Over the past 2 years the number of active licenses has grown by around 3% per annum, however the number of new licenses issued fell by 15% in the past year with just under 2,000 new licenses issued in the year to March. That number matched to the number of active licenses demonstrates the churn in this industry. It is well known that close to half of all new entrants to the industry give up before their first anniversary contributing to this overall churn of around 15% per annum.
When it comes to the structure of the industry from the perspective of the major brands, the picture is one of consolidated strength among the recognised high street brands, with more than half of all offices displaying one of the six major brands. Assessing these major brands based on number of offices, Harcourts and Ray White take the top two spots with 180 and 166 offices a piece, far distant to the scale of the next 4 who are close rivals at the level of 60 to 70 offices around the country.
The fact is, the high street is changing and the physical presence of real estate offices is nowadays less a method of lead generation, than it is a branding exercise. This is most evidently shown by the fact that the local real estate office these days will more likely resemble the reception area of a smart lawyer or the ubiquitous local cafe, as compared to the the cluttered desks and reception counter of a decade or so ago. However much the style and design of these offices change, the industry is not immune to the fact that high street presence is a costly form of marketing and the past decade has seen a contraction of their presence.
A decade ago there were close to 1,500 real estate offices around the country, today less than 1,200. This reduction has not though been uniform. Harcourts have certainly retained their leadership with a reduction of less than a dozen offices. Ray White has grown significantly though a combination of new openings and brand switching, most significantly the Re/Max Leaders Group in Wellington and the recent switch of Austar Realty from LJ Hooker in total adding 24 offices as Ray White has grown to edge within 14 offices of Harcourts.
A number of brands has seen significant declines in offices numbers over the period. The Re/Max decline was significantly impacted by the Leaders move to Ray White. First National has declined from 78 to 42 offices, and the combined operation of Harveys & LJ Hooker which merged in 2010 has gone from 111 offices to 76 today.
Conversely on the rise, has been Bayleys up from 60 to 72 and Property Brokers which a decade ago was a regional operation in the Manawatu and Hawkes Bay and now spans across multiple regions of both the North and South Island, more than doubling offices numbers to sit at 41 today.
The only new entrant to the market has been Mike Pero which has 54 offices. Mike Pero's operation has leveraged their franchise model to expand fast to create this infrastructure however their office support around 170 salespeople equivalent to just over 3 per 'office' whereas across the whole industry the average office supports 12 salespeople.
Whilst the number of offices speaks to high street brand presence and undoubtedly does drive the performance of these brand operators, the scale of each brand in the market is more rightly judged by the number of salespeople or better still transactions. Whilst not universally published, the major brands do make reference on a fairly regular basis as to the scale of their business by transaction, by this means it is possible to make informed estimates as to the scale of each operation. What I find interesting is to take that collected and intuited data and analyse the 'operational efficiency' of each brand by the measure of transaction per office as the final chart below details.
The telling insight this brings, is that Ray White and Harcourts manage very similar levels of transactions per office - around 90 to 100 per annum, whilst Barfoot & Thompson and Bayleys achieve a higher level in the 130 range per office per annum. The average across all 1,200 offices is 74 transactions in the past 12 months per office, with the smaller brands matching the independent operators at around the level of 1 transaction per office per week.