The real estate industry includes development and management of projects related to commercial, residential and industrial domains. There are different factors present in the macro-environment that can affect the outlook of the industry. The PESTLE analysis of Real Estate Industry covers these 6 factors that have the potential to influence the stakeholders in the industry.
Background and Introduction
The real estate industry is a sector that deals with the buying, selling, and renting of properties such as land, buildings, and homes. It is a vital sector of the economy as it affects individuals, businesses, and governments.
The industry can be divided into two main categories: residential and commercial real estate. Residential real estate involves the buying, selling, and renting of homes and apartments, while commercial real estate deals with the buying, selling, and renting of properties used for business purposes, such as offices, warehouses, and retail spaces.
The real estate industry is heavily influenced by factors such as population growth, interest rates, economic conditions, and government policies. The industry also relies on various professionals such as real estate agents, brokers, appraisers, and lawyers to facilitate transactions.
In recent years, technological advancements have revolutionized the real estate industry, with the emergence of online property listing platforms and virtual home tours. The industry continues to evolve and adapt to new trends and challenges, making it an exciting and dynamic field.
Facts and Figures
| Fact/Figure | Value |
|---|---|
| Global real estate market size (2020) | $8.9 trillion USD |
| Global real estate investment (2021) | $900 billion USD |
| Number of households worldwide (2020) | 2.78 billion |
| Global average house price (2021) | $227,700 USD |
| Top country for real estate investment | United States |
| Percentage of US households that own homes | 65.8% |
| Average rent for a one-bedroom apartment | $1,124 USD per month (in the US) |
| Real estate industry contribution to GDP | 7% |
| Number of real estate agents in the US | 2 million |
| Top real estate companies in the US | Keller Williams, RE/MAX, HomeServices of America, Compass |
Major Players of Real Estate Industry
| Name | Headquarters | Industry Focus | Revenue (2021) |
|---|---|---|---|
| CBRE Group | Los Angeles | Commercial real estate services | $24.7 billion |
| Jones Lang LaSalle | Chicago | Commercial real estate services | $18.1 billion |
| Brookfield Asset Mgmt | Toronto | Real estate investment & services | $14.4 billion |
| Simon Property Group | Indianapolis | Retail real estate | $4.6 billion |
| Prologis | San Francisco | Industrial real estate | $4.4 billion |
| Vonovia SE | Bochum, Germany | Residential real estate | $4.1 billion |
| D.R. Horton | Arlington | Home construction | $24.8 billion |
| Lennar Corporation | Miami | Home construction | $22.5 billion |
| Redfin Corporation | Seattle | Online real estate brokerage | $1.1 billion |
| Zillow Group | Seattle | Online real estate marketplace | $5.7 billion |
Political Factors
The political factors have a major contribution in the development or stagnation of the real estate industry. Having political instability makes the industry experience high levels of uncertainty, which results in the lower interest of people in purchasing real estate. Moreover, organizations focus on management of current operations and are not likely to invest in new business locations.
Russia is one of the countries that is experiencing intense conflict. The real estate segment is directly affected by this situation. The prices of properties in high conflict areas are reduced while the demand also declines as people seek more secure locations (Asanova, 2023). Russian real estate investors have shown interest in Dubai owing to its political stability.
The policies adopted by the government related to taxation and subsidies also shape the way real estate industry progresses. In the US, the government started with the tax credit scheme for individuals to help support the real estate sector in dealing with slowdown. This initiative has helped in creating a higher number of sales of the properties.
Economic Factors
The level of inflation in a country determines the way people respond to the purchase decisions for real estate. Demand for housing, commercial and industrial project development is dependent on the inflation ratio. A higher inflation causes suppression in the demand for real estate as individuals and organizations struggle to manage the effect of price increase.
Financial crisis is one of the major economic events that has negative effect on this industry. The example of US and Dubai is notable in this case as it illustrates the way recession causes crash of the real estate segment. Dubai has been able to revive its real estate industry in the post pandemic phase by creating economic stability (Gambrell, 2023).
High interest rates lead to lower demand of the housing and commercial properties in the market as people refrain from spending in this sector. The higher interest rate is deemed as an additional burden along with the risk of debt. Economic issues can discourage people from renewing the lease and they may opt for lower rent options.
On the other hand, there are some factors that support the real estate industry in developing. These factors include growing GDP, high employment rate, presence of job security and growth of its different industries which promotes the demand for commercial and non-commercial properties. Organizations also invest in the expansion of their industrial and commercial projects.
Social Factors
The population growth is a major factor that drives the real estate sector towards growth as a rising population means a higher demand for real estate property in the future. The developing urban segment offers opportunities for the real estate industry as the commercial and non-commercial projects can be initiated in these regions.
Level of education and socio economic status of the people also determines the tendency of the buyers to make purchasing decisions. Individuals who are not able to access quality education and have unstable job are not likely to have income that can be used to make real estate purchase. The rental agreements would also be considered based on the financial standing.
Demand for residential projects is also linked to the economic stability in a region. When there is high level of uncertainty, the buyers are making fear based decisions which are reflected through their hesitation to invest in the real estate sector. Organizations also make purchasing decisions on the basis of the market prospects and business profitability.
Major events that change the way society operates also influences the dynamics of an industry. The real estate sector experienced the effect of COVID in the form of lower number of revenue generated and an overall decline in the residential and organizational purchase of properties. Furthermore, tourism oriented businesses were significantly effected due to generating less rent (Tanrıvermiş, 2020).
Technological Factors
Developments in the domain of technology have greatly benefited the real estate industry as the development of projects can be done with efficiency. In addition to this, project planning, forecasting industry demand and managing the operations accordingly is supported by the use of relevant technologies.
The real estate companies have further incorporated AI and digital technology as a part of their day to day activities. Chatbots on the website shows how artificial intelligence is helping the sector to connect with the customers in an effective way. Digital advancement has also helped the industry as the companies were able to offer virtual tours of the property (Abualzolof, 2022).
Legal Factors
The real estate sector is governed by laws that are specifically focusing on the lease, sale and purchase of the property. Some of the legalities the companies have to consider are accurate representation of the condition of property, avoidance of discrimination and developing contracts that are aligned with legal framework.
Transparency is at the core of the legal guidelines and the firms have to have make sure that the relevant details are shared with the buyers. Any issues with the property needs to be communicated to the customers. Lack of compliance with these regulations can result in penalization as well as suspension or cancellation of the license.
Environmental Factors
The regulations related to environment such as The Environmental Protection Act 1990 offer guidelines for the real estate sector. On the basis of these guidelines the companies in the industry manage their operations in an environment friendly way while reducing the contamination of the environment.
Companies operating in the real estate sector have to ensure that the material being used in the construction of commercial and non-commercial projects is not harmful for the environment. There has been a rise in the domain of renewable energy which has affected the way development of new real estate projects is managed.
Conclusion
The real estate industry is sensitive to the political, economic and social changes. Unstable political and economic condition lowers the demand of real estate while social trends also influence its growth rate. The environmental regulations have shaped the way the industry operates. The legal regulations also have a significant effect on the way the industry functions.
References
- Abualzolof, P. (2022). 5 Ways To Use Virtual Reality In Your Real Estate Business. Forbes. Retrieved from: https://www.forbes.com/sites/forbestechcouncil/2022/10/05/5-ways-to-use-virtual-reality-in-your-real-estate-business/?sh=44c1bae37b1d
- Asanova, A. (2023). How did the war affect Russia’s real estate market? Novaya Gazeta Europe. Retrieved from: https://novayagazeta.eu/articles/2023/02/01/how-did-the-war-affect-russias-real-estate-market-en
- Gambrell, J. (2023). Dubai boom sees Russian cash, high rents and reborn projects. AP News. Retrieved from: https://apnews.com/article/us-department-of-the-treasury-business-united-arab-emirates-dubai-middle-east-192fbc4638f38d9334ad2508cae1eef4
- Tanrıvermiş, H. (2020). Possible impacts of COVID-19 outbreak on real estate sector and possible changes to adopt: A situation analysis and general assessment on Turkish perspective. Journal of Urban Management, 9(3), 263-269.