High Streets Initiative · 20 July 2018

Rising estate agent insolvencies show high street survival isn’t just a retail problem

estate agent insolvencies
London estate agent Foxtons recently reported a 15% year-on-year drop in revenues

As a series of big name retailers struggle to survive on UK high streets, Mike Smith, founder of online insolvency hub Company Debt, explains why the difficult trading environment is also hitting estate agent businesses.

We’re often reminded how the high street is struggling, but a recent study has found that it’s not only retailers that face intense competition from their rivals online. Research by one of the UK’s leading accountancy firms has found that estate agents are also feeling the heat, with 153 becoming insolvent over the last year, up from 148 the year before.

Currently, more than 7,000 estate agents across the UK are showing signs of financial distress, and it’s not just the smaller firms that are struggling. Even larger estate agents are feeling the strain, as evidenced by the second profit warning issued by Britain’s largest estate agent Countrywide in June.

The London estate agent Foxtons also reported a 15 percent drop in revenues to £24.5m in Q1 2018 when compared with the same period last year.

Read more on the current state of UK high streets:

The online market is growing

While the high street estate agents are struggling, many of those that operate exclusively online are thriving. New entrants like Hatched and Yopa are adding to the level of competition and squeezing the margins of traditional estate agents that often have higher staff and property costs to contend with.

Government plans to ban estate agents from charging letting fees to tenants will damage profit margins even further, particularly given that these fees currently contribute significantly to the bottom line. The proposal was initially announced by chancellor Philip Hammond in 2016 and is expected to be passed in spring 2019.

Sales volumes are in decline  

Adding to the problems caused by increased competition and declining profit margins is the subdued property market, with demand from buyers currently low and the number of properties coming onto the market more of a trickle than a torrent.

Uncertainty caused by Brexit is also leading some prospective homebuyers and sellers to delay purchasing decisions. Then there’s the stamp duty surcharge, applied to buy-to-let properties in April 2016, which is deterring some buy-to-let investors from adding to their portfolios.

Estate agents must move with the times

Given the rise of online alternatives, some areas of the UK now appear to have more estate agents than they need. Given that property transactions are currently stagnating, unless the housing market sparks into life quickly, it’s unlikely there’ll be enough business to go around.

That means estate agents with a traditional model may have to look at how they can review their service offering to reduce their overheads, compete more effectively in the current market and keep insolvency at bay.

Mike Smith is a director of Company Debt and a business insolvency expert with four decades of experience

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Mike Smith is a director of Company Debt and a business insolvency expert with four decades of experience.

Business development