Why are Estate Agencies Facing Increased Levels of Financial Distress? The Brexit Effect?
The uncertainties for businesses caused by the Brexit process have seen increasing levels of financial distress throughout the economy, but the real estate and property sector has been one of the hardest hit. The figures show that in the year since the triggering of article 50 on March 29th 2017 there has been an increase of 33% (477,210 Vs. 358,943) in businesses facing financial distress, across every region and industry sector of the UK. However, as our insolvency practitioners report, the figure for the real estate and property sector, including estate agencies, is 46%.
In this article, we look at what is driving these figures – which point towards an increase in insolvencies in the property sector – and ask is it just the Brexit effect? We also comment on how the insolvency profession has worked with one well known estate agency, Humberts, in a pre-packaged administration and sale, to help ensure it is ‘business as usual’ for them.
What are the Worst Affected Industry Sectors?
The Real Estate and Property sector, which includes estate agencies saw an increase of 46% in businesses in significant financial distress – up to 41,624 businesses – over the 12 months to end April 2018.
Other sectors to show large scale rises were:
- construction (up 26%),
- financial services (up 45%) and
- telecommunications (up 47%), the only sector with a higher increase than the real estate and property sector
Inevitably, figures such as these point towards an increase in the risk of insolvencies, which is where insolvency practitioners come in, either to help restructure at risk companies to avoid insolvency, or to use the most appropriate insolvency procedure. Click here to see our insolvency and restructuring guide, and the 6 signs of a business in financial distress.
Why is the Estate Agents’ Sector Under Such Pressure?
Economy wide, business confidence has suffered due to the uncertainties of Brexit. In addition, the economy has also faced a wide range of other issues, which have slowed progress over the past year, including:
- Currency fluctuations,
- Rising interest rates,
- Subdued consumer spending,
- A cooling property market
The latter point is, self-evidently, at the core of the difficulties being faced by estate agents, a topic we first looked at in August 2017. In this article we noted that the following were key factors in the increase in the numbers of estate agents facing significant financial distress to c.19% of the total:
- Tighter margins,
- Fewer transactions,
- Increasing competition from online estate agents, who continue to grow their market share.
Building on this last point, it is worth noting that a recent report by HSBC found that the overwhelming majority of British house buyers were now using online methods when researching and buying property, resulting in the home buying and process changing “beyond recognition.”
In other words, the difficulties faced by the sector are as much to with structural changes and changes in the way consumers are behaving, as they are to do with the Brexit effect: economic, financial and political reasons.
Case Study – Pre-pack Administration and Sale of Humberts Estate Agents
The difficulties being faced by estate agents is demonstrated by the recent pre-pack administration and sale of Humberts, a 176-year-old estate agency specialising in rural properties to the luxury holiday firm Natural Retreats. The first indication of difficulties arose in April when it was revealed that Humberts were in talks with administrators.
The good news for Humberts is that a pre-pack administration and sale has been implemented quickly and decisively by their retained Insolvency Practitioners and that branch closures and redundancies have been avoided.
Swift Action is Required When Facing Financial Difficulties. Insolvency Practitioners can Help
Brexit uncertainty will continue for some time and businesses will continue to be concerned about the outcome. In the meantime, the Bank of England has signalled that the anticipated upward trend in interest rates is likely to be on hold until late summer at the earliest. However, at some stage interest rates will start to rise again, and that is when struggling businesses with high levels of debt are at greater risk of being pushed into a formal insolvency procedure.
The example of Humberts certainly fits in with the long-held advice we give which is that the sooner a problem is recognised and acted upon, the better the chance of a positive outcome.
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If your business is facing significant and growing financial difficulties, please contact our insolvency practitioners, or call them on 0208 088 0633 for a free initial chat. With offices in London, Brentwood, and Salisbury, we cover much of the South, the Midlands and further afield.
