21% More Property Sector Businesses In Critical Distress

Over half a million businesses are now in significant financial distress with the real estate and property sector amongst the worst hit.

2,289 businesses are now in critical distress, a precursor for insolvency. This figure represented a 10 per cent increase in the opening quarter alone. The research has also suggested that governmental interventions have prevented this figure from rising further.

Worryingly for the property market, 21 per cent more real estate and property firms slipped towards critical distress this quarter with the number rising from 128 businesses in the final quarter of last year to 155 in the present.

Over 509,000 businesses are now facing severe financial distress which represents the highest figure since the measurements began according to the Red Alert by Begbies Traynor.

In the opening quarter of the year, 15,000 more businesses were classed as being in significant financial distress with the research attributing the obvious economic impact to Covid-19 and social distancing measures.

Over the past year, businesses in the property sector experiencing financial distress rose by around a fifth (17 per cent). In total, this figure has grown from 48,428 businesses in the opening quarter of 2019 to 56,421 in 2020.

The construction sector was also considered amongst the worst hit since the last quarter, increasing by 4 per cent to 65,456 businesses in financial trouble in the past three months.

Julie Palmer, Partner at Begbies Traynor, said:

“The coronavirus pandemic is a true ‘black swan’ event that has decimated short term business financial performance. Although it is still early days and with no end to the lockdown in sight things could get much worse, with the Red Flag research highlighting landmark levels of financial distress already.

“With many SME’s yet to access government funding such as CBILS, many will simply run out of cash, particularly with the April pay run approaching and payment for furloughed staff still outstanding. The Red Flag research demonstrates that many businesses were being cut close to the root before this crisis started to affect the economy and may be left with little option but to cut their losses with the knowledge that they would never be able to pay back a loan, no matter what the terms.

“While the loss of a business is devastating, UK business owners are talented entrepreneurs and after coronavirus will find opportunities. At this moment, we just have to anticipate what those opportunities are.”

Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:

“We hope that the concerted effort made by the Treasury to stand behind UK businesses through its package of measures proves to be successful so that the business community and, ultimately the UK economy can withstand the huge pressures placed upon it during this time. The truth is that this crisis has hit all business owners by complete surprise. They weren’t ever expecting to face such a drop off in activity or footfall, and few can be prepared for such a cliff edge in revenue.

“Those businesses with strong balance sheets and access to funding will be able to reorganise their operations and survive the financial shock of this pandemic, while others will unfortunately not have the resources to carry them through this emergency and the uncertainty to follow.

“This latest data from our Red Flag Alert research suggests that UK businesses continued to struggle as the economy slowed last year, and that is before the full effects of COVID-19.Consequently, we expect these numbers to be the “tip of the iceberg” and as the year progresses we expect to see the number of organisations falling into significant and critical financial distress and ultimately insolvency to materially increase. With finite resources to bail out companies, the government has difficult choices to make concerning which companies to save based on which have the strongest footing to thrive long-term. As with the collapse of Flybe and Thomas Cook, there are going to be tough decisions ahead which must be based on sound economic principals if the money is to be recovered.”

1 Comment

  • test

    Is this the end of the home moving sector as a cottage industry?

    Time for a radical rethink of what the consumer needs

    St.ep forward “Which?”

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