The boss of the UK’s biggest property franchising network, The Property Franchise Group, says some of his own franchisees will not survive, and that between a quarter and a third of all agents are in jeopardy.
And the head of the second largest franchising firm, Belvoir, said it is getting on average one unsolicited approach a day from an agency owner looking to sell up.
Ian Wilson, CEO of TPFG, told EYE that his warning about firms going out of business applied to both sales and lettings.
He said: “There is going to be a clear-out of the industry.”
He said legislative clampdowns would add significant costs to agents. There was also the threat from online agents with low overheads.
He said: “We understand that some of our franchisees will not survive. I think that there are about 20 Martin & Co businesses in this category. We believe our traditional branch network will be neutral this year in terms of numbers, and that in 2019 there may actually be a reduction.”
The lettings fee ban was a real danger, and he said there were certain triggers that could threaten the future for an agent.
He said that there are around 1.2m sales annually, and 25,000 branches. The sales business was predicated on just one sale a week per outlet, while “lettings is all about volume”.
He said danger signs were when a business has fewer than 120 properties under management and is 90% reliant on lettings income.
Wilson said: “It is why, as a business, we are doing the things we are doing – encouraging our traditional agents to fight back, and to scale EweMove.”
Wilson also revealed that TPFG is now centrally recruiting Local Property Experts to work in the field: “If they can list ten properties a month and sell six, that gives them an income of £60,000 a year.”
Meanwhile Belvoir boss Dorian Gonsalves is looking to help grow his franchisees’ businesses.
He said that the company’s assisted acquisition programme – which helps franchisees acquire local competitors – is set to double this year.
Gonsalves said: “There are currently 17 deals in the pipeline, and an additional 74 franchisees have funding in place and are looking for their ideal targets.
“There will be consolidation in the industry and the reasons are clear – the sector is changing so quickly, and it is going to become more expensive for smaller independents to stay in business.”
In results reported yesterday, Belvoir said: “There remain over 10,000 potential acquisition targets comprising small to medium-sized independent lettings and sales agents in the UK which might look to exit following increased regulation and the prospect of the ban on tenant fees in 2019.”
Wilson said that at TPFG, the emphasis is on helping franchisees achieve scale: last year, franchisees added a total of 2,000 managed properties to their portfolios. In the first three months of this year, there have been acquisitions of 800 managed properties – “so it is gathering pace.”
The fees ban will put at risk 16% of franchisees’ lettings income, said TPFG, while Belvoir put the figure at about 13%. Both businesses remain predominantly lettings focused, with TPFG reporting that lettings accounts for 70% of management service fees, and Belvoir saying that 80% of its business is lettings.
Despite a challenging future, the business rivals yesterday delivered strong results for the 2017 financial year.
The two were the subject of a possible merger instigated by the smaller Belvoir in February – something which Wilson angrily at the time described as a hostile reverse takeover bid. Nothing came of it.
Yesterday, however, Wilson sounded a conciliatory note, telling EYE: “I am glad that, like us, Belvoir have reported good results. It gives confidence in our business models. It shows franchising works.”
TPFG is expected to pay an increased dividend of 5.4p, and Belvoir to pay 6.9p.
The Property Franchise Group
Revenue rose 23% last year to £10.2m, with pre-tax profits up 33% to £4.3m. Its hybrid brand EweMove made a profit in the second half of last year “despite unexpected management disruption”.
TPFG had 403 outlets last year, with 283 high street brands and 120 EweMove.
Yesterday, its share price barely changed on the London Stock Exchange, closing at 136p.
Belvoir reported group revenue up 14% to £11.3m. Pre-tax profits rose 62% to £3.9m.
In its first full year as part of the Belvoir Group, Northwood contributed £1.2m to revenue.
Belvoir had a total of 300 offices last year – 171 Belvoir, 39 Newton Fallowell and 90 Northwood.
Yesterday, Belvoir’s shares edged up about 1%, to close at around 103p.
Source: Property Industry Eye