After nearly a decade of phenomenal growth, the real estate industry’s spending on online advertising may be set to plateau as agents and brokers move to employ more diverse marketing strategies, a new report by research and consulting firm Borrell Associates predicts.
According to Borrell researchers, spending on online advertising by real estate brokers and agents, mortgage originators, rental property managers, and real estate developers has more than quadrupled from $2 billion in 2004 to $8.89 billion last year.
But those days of heady growth appear to be coming to an end. Borrell is forecasting that online real estate advertising will grow by only 2.9 percent this year, to $9.15 billion, compared with a 27.3 percent increase last year.
During the next six years, Borrell is projecting a compound annual growth rate of just 1 percent a year in online real estate advertising. By 2016, Borrell researchers believe online advertisers will capture just 32 percent of the real estate industry’s ad spending, down from 44 percent in 2010.
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Within the real estate category, agents and brokers spend nearly two-thirds of their ad budgets online — 64 percent in 2010 — compared with 23.2 percent for mortgage originators, 14.5 percent for rental property managers, and 47.2 percent for real estate developers.
"The share of ad budgets that the real estate industry is spending on the Internet is obscene and may actually be a bit out of kilter," CEO Gordon Borrell told Inman News earlier this month, speaking about the findings in the report, which is a paid product.
According to Borrell’s research, only job recruiters spend a greater proportion of their ad budget online — 57 percent in 2010.
Borrell said successful marketers typically employ a more diverse mix of media that includes print, broadcast, online and direct mail.
The new report predicts that online will continue to be "the premier choice for Realtors," with agents and brokers expected to boost spending in that arena by 6.2 percent in 2011, to $5.72 billion.
But with agent and broker ad spending in all mediums expected to grow at a more rapid pace of 7 percent this year, to $9.02 billion, online advertisers would capture a slightly smaller slice of the agent and broker pie — 63.5 percent — than last year.
Borrell researchers are predicting that newspapers will take back some of the market share they’ve lost to online advertisers, "as agents try to convince sellers they are doing all they can to sell their homes," wrote Kip Cassino, principal author of the new report.
Many home sellers expect to see ads in the newspaper — "it’s physical proof that the listing agent is actively marketing the house," Cassino said. "While this expectation has attenuated with time, it is still powerful in most markets."
Borrell projects that agent and broker ad spending on newspapers will grow 11.3 percent in 2011, to $2.01 billion, capturing 22.2 percent of agent and broker ad budgets.
Borrell also expects broadcast media will get more attention from agents and brokers this year, with spending on broadcast TV expected to grow 8 percent in 2011 to $250 million, and radio ad spending projected to grow 28 percent, to $70 million.
TV "has become the only true mass medium in town," Cassino writes, and rates and formats have become more attractive.
Nevertheless, the 4 percent cumulative market share of broadcast TV (2.7 percent) radio (0.7 percent), and cable television (0.6 percent) advertisers among agents and brokers was smaller than direct mail (5.2 percent).
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Borrell expects agent and broker spending on direct mail to grow 4.3 percent this year, to $470 million, following a surge of 13 percent in 2010.
Borrell has identified another trend in agent and broker advertising at cinemas, which Borrell estimates was up 65 percent last year and which is projected to grow by another 34.6 percent this year, to $60 million.
Cinema advertising continues to grow "because of its promise of a captive audience and low prices," the report said.
Industry spending, all categories
For the real estate category as a whole, Borrell projects that ad spending in all mediums will grow by 8.1 percent in 2011, to $21.82 billion.
Mortgage originators are expected to lead the charge, boosting ad spending by 15.5 percent, to $9.54 billion, and surpassing agents and brokers as the biggest advertisers in the real estate category.
Online advertisers will capture the largest slice of that pie — $2.49 billion — as mortgage originators boost online spending by a projected 13.9 percent.
Other big spenders in the the real estate category are rental property managers, who Borrell expects will increase ad spending by 14.6 percent in 2011, to $2.21 billion, and real estate developers, who are expected to continue drastic cutbacks in marketing by slashing ad spending by 34.9 percent, to $1.04 billion.
Borrell projects that in the real estate category as a whole, advertising dollars will be concentrated in online (41.9 percent), newspapers and other print advertising (21 percent), and broadcast and cable television (16.9 percent). Direct mail will also continue to attract nearly $2 billion in real estate industry ad spending, or 9 percent of the total, down from 9.7 percent in 2010.
That the real estate industry is so dependent on online advertising is no surprise, given the findings of a recent Borrell Associates survey of nearly 400 real estate agents, brokers and apartment managers.
The survey showed company websites (including agent and broker websites) were identified nearly as often (67.6 percent) as referrals from past customers (72.5 percent) as the best source of new customers.
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Perhaps surprisingly, print newspaper ads (42.2 percent) and direct mail (33.4 percent) were more likely to be identified as the best source of new customers than email marketing (28 percent), social media (22.6 percent) and online ads (17 percent).
But social media "has moved from nowhere to a prominent position in just two years," Cassino noted, and "direct mail is certainly challenged by its online progeny, email advertising." All in all, the survey showed "an industry in transition, increasingly turning from old ways to new, but still attached to a century’s worth of habits."
Among the 389 agents, brokers and apartment managers surveyed between Feb. 1 and April 15, more than 64 percent of said their business maintains a social network page or site. About 78 percent of those surveyed said they use Facebook and 41 percent use Twitter, the report said.
Eighty-six percent said they expected to spend money on maintaining a website in 2011, and 68 percent said they would be spending money to promote their business on social networks. Nearly 31 percent said they were planning to place ads with Facebook.
Agents, brokers and apartment managers surveyed by Borrell have been slower to embrace mobile advertising and marketing, with only 17 percent saying they’d mounted campaigns in that arena.
While 80 percent said they weren’t active in mobile in 2010, 47 percent said they were somewhat or very likely to incorporate mobile elements in efforts to reach customers in 2011. Only 15 percent said they were not at all likely to use mobile.