How have they fared in the past few years & what does the future hold for them?
Property, both domestic and commercial, has long been seen as the bedrock for economic growth throughout the UK.
So how has the real estate industry been faring in the past couple of years of the pandemic and subsequent lockdowns and declining wider economic conditions?
Real Estate insolvencies 2019 to 2022
|Number of Insolvencies
The underlying strength of the residential and non-residential market appears to be quite stable.
Despite residential sales taking a hit during the Covid-19 affected years, they have now grown once more to their highest annual levels in years.
Similarly non-residential sales reduced in the same period but have now nearly recovered to their pre-pandemic levels.
Asking prices for UK homes are at record levels with the average for one or two bedroomed houses at £224,963 which is 2% higher than the same time 12 months ago. This is despite higher mortgage rates being introduced by lenders.
The Office for National Statistics (ONS) reported that the average price for all UK houses is £288,000 which is £5,000 lower than in November 2022.
With so many indicators saying that the market is if not buoyant then stabilised – why are more real estate businesses going into insolvency?
In the previous 12 months alone, there are 43% more insolvencies recorded with 724 real estate companies closing their doors for the final time.
Rising interest rates and the general cost of living crisis hasn’t deterred buyers and sellers much so we’ll take a closer look at the specific reasons that apply to the real estate sector:
- Competition – The real estate industry is traditionally one of the most competitive in the UK with many agents, often within the same agency, fighting for the same listings. The attritional effect can make it difficult for agents and agencies to differentiate themselves, stand out and attract new clients.
- Lack of sales – Several agents are paid a commission on each property they sell in addition to their regular wage so if they don’t sell enough then they may not be able to cover expenses.
- High overheads – Compared to other businesses, estate agencies have a lot of regular overheads to pay out on before a penny is taken in as revenue. These include salaries, additional commissions, rent and marketing outlay as well as the regular increasing bills that every business is having to manage including energy bills.
- Individual factors – local and dynamic changes to their own markets will affect every estate agency in the country no matter where they are but in different ways. Local and hyper local markets are changing daily and businesses have to adapt to them constantly – incentives have to be created and deployed, agents allocated, new properties from hot areas sourced at short notice etc.
- Financial strain – like many other businesses, cash flow and investment are critical and if the business finds itself overstretched through overspending, over-leveraging or not having enough cash flow to cover the necessary expenses then they could quickly find themselves in a negative spiral that will get worse quicker than they can believe.
- Leadership – In a high pressure environment such as real estate, motivation, morale and management are potentially more impactful and therefore important than other sectors. Unmotivated staff can leave, unbalancing teams and if they are high performers then their impact will have a direct financial impact on the business too.
On the surface, the real estate industry looks like it might be doing well compared to industries such as construction, hospitality and retail.
But looking closer at the figures, a 43% annual increase in insolvencies is a strong sign that success might not be universally enjoyed.
This is why we offer a free initial consultation for any estate agency owner or director who wants to explore what options they have to help their business deal with rising interest rates, historically high inflation and an ongoing cost of living crisis across the board.
Once they get a good understanding of the situation your company is facing then they will be able to provide a range of options suited to it that could help improve their outlook in the short and medium terms.
Or if closure is the best option they can discuss how to liquidate as quickly and efficiently as possible.
Get in touch with us today and we’ll get things moving.