19% of estate agents in the UK currently exhibit warning signs that indicate they are at risk of going insolvent according to the latest research by Moore Stephens. The research shows that 4,928 estate agents out of a total 25,560 are showing signs of financial distress.
Online estate agencies such as PurpleBricks, House Simple and Emoov threaten to squeeze profit margins of some high street estate agents. Traditional estate agents are likely to have higher property and staff costs and therefore struggle to compete with the low-cost fixed-fee model offered by online-only agents in certain residential property categories.
The growth in property websites has also undermined the role of estate agents as an essential part of the process. Websites such as Zoopla and Rightmove make it easier for potential buyers to browse and view homes – without the help of a professional.
Added to this, smaller high street agents have already had their margins squeezed by larger national businesses, such Countrywide and Connells, which can allocate substantial budgets to marketing and advertising in order to increase their share of the market.
Property sales in the UK are still struggling to climb back to their peak before the financial crisis when over 1.7 million sales were made in 2006/7. The number of property sales has since fallen 32% to 1.2 million sales in 2016/17.
Many are now choosing to develop or extend their existing properties instead of buying larger properties. The number of planning applications for extensions has risen to 29,654 in 2016/17, from 29,041 in the previous 12 months.
Mike Finch, Restructuring and Insolvency Partner, comments: “Traditional high street estate agents’ profit margins are being squeezed from both sides – from cut price online competitors, to their larger counterparts on the high street – who are forcing them to up their spending or give up the race. Many areas across the UK are oversaturated with estate agents, and competition is becoming too much for some smaller businesses.”