Tough times ahead
Last week Countrywide announced the closure of 59 local estate agency offices in its national network. Ostensibly this is an exercise to consolidate competing high street brands. The company announced its rationalisation plans would help them concentrate on fewer, quality brands. But is this move really about ending a confusing mix of rival agencies or does it signal a darker truth about the future of the high street estate agent?
The status quo
For some time industry insiders have been voicing concern about the viability of the current estate agency model. Transaction volumes on second hand homes in London are down nearly 50% from 18 months ago, according to LonRes. This fall in transaction volumes is not sustainable for an industry dependent on fees to survive. Big industry players including Foxtons and Countryside issued profit warnings earlier this year.
A throwback in time
The effect of this dramatic fall in transaction volumes is something I am intimately acquainted with. I was sales manager in the Knightsbridge office of a national agency during the last downturn. Over a 2 year period sales’ volumes dropped 60%. I recall with great clarity just how stressful it was keeping the office going when almost no-one was prepared to trade in the prevailing market conditions.
The whole experience was like being trapped in an episode of The Apprentice with Alan Sugar bellowing the same message in my ear over and over again: ‘cash flow is king’.
This time around there are other factors responsible for the decrease in transactions. There are new taxes on property, changes to capital gains tax and stamp duty and technological advancements. There is much uncertainty about Britain’s trading position after Brexit.
The property market is notoriously susceptible to uncertainty.
This is unsurprising when there is so much investment is at stake for everyone. Why commit to decades of mortgage or to starting a multi million pound development if you are unsure of your job or the market for your property in 3-5 years?
The high street model
The high street agency model depends on cash flow. If people are not buying property in sufficient numbers, how can you meet your overheads? And the overheads associated with a staffed shop front on the local high street are enormous. In any event, the rationale behind the local shop front seems increasingly obsolete with excellent property portals unconstrained by geography or opening hours. There is little doubt in my mind that serious change in the industry is afoot. Indeed rumour has it that Countrywide will actually close closer to 200 offices when its consolidation exercise is complete. It is unlikely the company will be able to achieve its goal of minimising the impact on staff with this scale of closures in the pipeline.
Does unpopular mean unworthy?
Estate agency is an unpopular business (for reasons I have already addressed here) Due to this unpopularity, there are few prepared to mourn the passing of the high street agent. As an ex-agent myself, I don’t really understand the dislike people have for the industry. So I will limit myself to saying that I find it depressing people are celebrating when there are significant job losses on the horizon. The British high street is undergoing an enormous period of change. And I ask those ready to break out the champagne, if your local estate agents close or move online, are you prepared to welcome yet more coffee shops to your high street?