Tough times for estate agencies as more firms red flagged for financial distress

More than 25,000 UK real estate firms are "red flagged" for financial distress, up 22% year-on-year in London

Estate agencies and other property companies will be pleased to see the back of 2016, says business recovery consultancy Begbies Traynor, after revealing that 25,669 UK real estate firms were suffering from financial distress at the end of November 2016; that’s 1,702 (7%) more than at the same stage last year. The landscape is even more troubled in London, where the number of distressed firms has jumped by 22%.

All those firms – high street estate agents, property management companies, residential landlords and lettings agents – have at least one “Red Flag” against their name on Begbies’ books; a warning sign that indicates around 33% are unlikely to still be trading in three years’ time.

Major stamp duty changes, lower transactional activity linked to Brexit uncertainty and, most recently, a major Government clampdown on letting agent fees, have all contributed to a pretty torrid year for the sector.

High street estate agents seem to have had the worst of it, experiencing an 11% rise in financial distress over the past 12 months. According to the research, 3,182 estate agents finished November in a poor financial state (up from 2,877 in November 2015), caused by unprecedented buyer uncertainty ahead of the Brexit vote and growing competition from online challenger brands.

Agents in London have seen the sharpest increase in distress over the period, rising 22% year-on-year, with 1,066 firms ending November in a weakened financial state (up from 875 businesses in November 2015).

It’s not all doom and catastrophe, though; property firms’ fortunes have at least seen some improvement in the five months since the Brexit vote. Levels of financial distress across the industry peaked in June 2016 ahead of the Referendum vote at 29,188 struggling real estate businesses (12% higher than the levels reported today), of which 3,523 were estate agents (10% higher than current levels).

Julie Palmer, Partner at Begbies Traynor: “Without doubt, 2016 has been a difficult year for the UK real estate industry. Not only did it have to contend with a major slowdown in activity in the run up to the EU Referendum, but over the past 12 months it has also borne the brunt of crippling public policy changes, which have rocked the sector to its foundations.

“From April’s shakeup of stamp duty and the recent clampdown on letting agent fees revealed in the Autumn Statement, which wiped £70m off the combined value of Foxtons and Countrywide when it was announced, to the phasing out of buy-to-let tax relief from April next year, the sector can’t seem to catch a break.

“Despite continued house price resilience, estate agents, especially those in London, have had a particularly challenging time, impacted by low transactional volumes, weak buyer and seller confidence, as well as fierce competition from online rivals such as Purplebricks, eMoov and Tepilo.

“However, while levels of financial distress across the sector are much higher than at this stage last year, positive trading in the months following the EU Referendum suggests that any potential negative Brexit impact on the housing industry may still be some way off.”