Estate Agency – The times they are a changing
Michael S Day MBA FRICS FNAEA FARLA, Managing Director Integra Property Services, Director teclet and
Founder Member Agents Together, has shared with us his thoughts on the recent reports that estate agency branches are declining.
A recent report published by property industry data analysts TwentyCi suggested that 339 estate agency branches had closed during 2020 representing around 2.6% of the total. The majority of these were in, what they described as the SME sector which is businesses of between 2 and 5 outlets with 5.6% of their total premises closing.
Small independent estate agency businesses (often owner managed) held steady at around 5000 physical outlets.
Hybrid and online businesses saw a 7.9% reduction in the number of companies (not branches) operating in the sector.
The research also revealed that the larger an agency is by physical footprint, the higher the average price of the properties that they appear to be instructed on.
For example, online/hybrids were instructed at an average of £299,195 while independents were instructed at £344,416, SMEs at £349,005, large agencies at £376,140 and corporates at £467,454.
This might suggest that (1) online and hybrid agents most appeal to those transacting in the lower price ranges and (2) that the value of a physical footprint may be measurably valuable by the value of the types of property being transacted.
Of course, there will be many other factors involved such as location and fee levels, but the research does tend to support a view that the online/hybrid agents are, perhaps, more appealing to first time sellers who tend to be younger and tech savvy and who are possibly more prepared to opt for an “execution style” service than more experienced sellers who gravitate, at the moment, towards those providing a “full service” and with a physical presence.
Many agents probably take the view that many of the current users of online and hybrid agents will not do so when they come to move again but I feel this may be too simplistic and runs the risk of seeing many agencies go the way of firms in other industries who failed to recognise trends and act appropriately. Kodak ignored the arrival of digital photography. Blockbuster failed to change for the Netflix generation. Nokia decided against moving into smartphones. All saw market leading positions disappear much more quickly than they were created. Could the same happen in estate agency?
There is no doubt that the estate agency landscape is changing with Covid creating a huge paradigm shift that, in my opinion, will rank alongside the arrival of the internet in its significance and effect in years to come.
The growth in what is being described as “self-employed” estate agency models is one such change. The arrival in the UK of American and global real estate giants Keller Williams and Exp Realty is seeing hundreds of individuals starting their own businesses under their umbrellas. In addition to these operators there is a growing number of smaller, often well established, individual agencies who are growing their market footprints through expansion on this basis. Of course, there are a number of “chancers” also joining the fray with promises of riches for the gullible or desperate who see becoming an agent as some sort of utopian existence where the work life balance is weighted in their favour and business will simply come rolling in!
The “self-employed” model will undoubtedly evolve. Currently the “churn” of people in that sector is high. Often due to an individual’s inability to generate business for themselves and survive a lengthy incubation period without income. However, over time, I expect the better ones to become firmly established.
The “self-employed” model is increasing the number of firms operating in the market as each operator is an individual business but not, of course, the number of traditional offices being opened.
So, does an estate agent need a physical “High Street” office? The simple answer is no and the direction of travel is certainly away from expensive shop fronts in locations that, even pre-covid, were becoming “night time” and “service” economies – bars, restaurants, nail bars and hairdressers. However, most agents and other providers within the industry are still largely open when their clients and customers are busy working. Technology is opening up the opportunities for 24/7 delivery but we still have some way to go.
As far back as 1987 I wrote a paper for Prudential suggesting a move towards regional “out of town” showrooms with excellent car parking and a full “one stop” shop range of services under one huge “retail park” style roof. I envisaged new homes developers having on-site show-homes fully built for viewing, conveyancers and mortgage brokers onsite and estate agency negotiators using it as a hub. Coffee shop, restaurant, creche and play areas together with cinema style viewing facilities would make it a destination worth visiting.
Creating “destination” value-add premises with high quality staff will be key if people are going to give up the time and incur the costs of visiting. Done well it should help businesses differentiate and justify higher fees. Continuing as is, will however, likely see consumers move more and more towards commoditised services or small, bespoke, personal agents as espoused by the “self employed” model.
I now have a number of clients who have moved to “hub and spoke” models rather than having a branch network and they are benefitting from greater productivity and reduced costs per head but very few have really yet changed their modus operandi to lead in a new order.
Estate agency premises are certainly not, in my view, dead but a business probably needs less of them to service a geographical territory and needs to make them “sweat more” in terms of not just being somewhere to sit people but a key ingredient in their marketing mix.
We are therefore likely to see reports from organisations like TwentyCi continue to report reducing branch numbers but this will not necessarily reflect a struggling sector but one in transition. The takeover of Countrywide by Connells will inevitably see the overall branch footprint reduce but I have no doubt that the consolidated business will become stronger and more fleet footed with investment in technology and people to the fore.
There will inevitably be winners and losers, first to markets and fast followers, rising stars and old dogs. Where do you and your business want to be?