Economic Predictions for 2010 and Their Implications

Posted on 15. Sep, 2009 by Robert Albanese

The following is a series of observations regarding the effect of economic factors on the real estate industry during 2010. Predictions of economic change have been extracted from the September 2009 edition of the “Kiplinger Washington Letter” and “Special Business Costs” editions Vol. 86, Nos. 35 and 36. Implications, conclusions drawn and potential action steps are the work and opinion of the author, and are not intended as direct-consultative advice for any specific company. All business planning is unique to companies and specific to markets and should therefore be conducted under the guidance of a team of valued advisors.

#1) Commercial property outlook

• Vacancies rising
• Rents falling
• Difficult to refinance creating loan defaults
• Rents dropping 1% – 2% per-quarter in 2010

Implication
Potential bargains for broker/owners to renegotiate leases and seek out new space

#2) Employment outlook

• Peaking around 11% in early 2010
• Turning around, but not until Spring 2010 or so

Implication
Rarely, if ever, has there been such a large and diversified pool of talent to hire!

#3) Financial Services Outlook

• New mortgage rules may delay closings
• Buyers have three days to study terms of loan
• Terms must be written in plain language
• Emphasis on comparison shopping makes it easier for buyers to back-out
• These regulations increase compliance costs for banks

Implication
Educating agents on new mortgage rules now will help buyers and real estate brokers achieve their 2010 goals

#4) Corporate profits

• Up about 8% in 2010
• First upswing since 2006
• Companies have a long way to go to recover lost ground over four years

Implication
No real implications for our business in 2010.

#5) Energy costs

• Gasoline up 30 – 40 cents per gallon
• Natural gas up 15%
• Heating oil up 25 cents per gallon
• Propane down about 10 cents per gallon due to plentiful supply

Implication
There is an ever-increasing need to continually re-examine budgeting for energy costs

#6) Postage, parcel and overnight delivery costs

• Bulk mail up 2.5%
• Overnight letters and parcels up 5%
• First class stamps up 1 cent

Implication
Yet another reason to automate and push key functions to on-line applications

#7) Health care costs

• Costs for health care companies up another 10%
• Rx drug costs up, but only in the single digits

Implication
Actual premiums won’t increase dramatically, due to competition in the marketplace

#8) Business services

• Legal fees mostly unchanged due to flat fee schedules in lieu of billable hours
• Charges for exhibiting at conventions – flat
• Advertising costs will decline between 2% (magazine) and 5% (TV) and online banner ads will remain low due to the abundance of ad space across the web
• Office supplies – flat

Implication
Business services will be mostly budget neutral year-over-year

Steps to consider in developing 2010 business plans

1. Look for opportunities to renegotiate rents and/or target new locations. Ask for free months, and allowances for moving and remodeling.
2. Create new and sustained emphasis on talent attraction (aka recruiting). Don’t miss this window of opportunity!
3. Create an agent training program around new mortgage regulations and implement as soon as possible.
4. Re-budget for expected changes in cost structures
5. Rework your marketing strategies to include ever more emphasis on the on-line environment
6. Allow some flex room in the budget for slightly increased health care costs, but maintain a relatively consistent spend year-over-year for professional services.

Posted by Robert Albanese in Brokerage Operations, Commentary, Marketing, Talent Attraction Tags: Advertisement, brokers, Budgets, Buisness Planning, Business Planning, Business Strategy, Buyers, Closings, Cost Structures, Economics, Economy, Energy Costs, Finance, Gasoline, Health Care, Kiplinger Washington Letter, Legal Fees, loans, Mortgage, Office Space, Outlooks, Owners, Predictions, Prescription Drugs, Real estate, Recruitment, Running a Brokerage, Sellers, Talent Attraction