Thousands of lettings and estate agencies, and other property businesses, are in ‘critical’ or ‘significant’ financial distress, it’s been claimed.
The latest Begbies Traynor Red Flag Alert report has found that levels of ‘critical’ financial distress jumped dramatically in Q4 2023, up 25.9 per cent on the prior quarter and allegedly leaving more than 47,000 businesses near collapse in the UK at the start of 2024. This represents the second consecutive period where critical financial distress has grown by around a quarter.
And Begbies says: “Serious concerns grow over the construction and real estate sectors which still represent nearly 30 per cent of all businesses in critical financial distress.”
The report says 6,228 real estate and property services firms are currently in critical financial distress; some 62,176 companies in the sector are in significant financial distress.
Last week a shift towards self-employed estate agency models was blamed for a decline in letting and estate agency branches, in separate analysis by consultancy TwentyCi. It claims that a total of 2,893 estate agent sales branches closed in 2023 with an additional 1,906 lettings branches ceasing to operate.
Even after new branch openings were taken into account, by the end of 2023 there were still 1,154 fewer sales branches and 659 fewer lettings branches. As of the end of 2023, there were 15,401 active sales branches in the UK and 14,544 active lettings branches.
Julie Palmer, partner at Begbies Traynor, says: “After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impacting every corner of the economy.
“Now that the era of cheap money is firmly a thing of the past, hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances.
“For some, a better-than-expected Christmas may kick these concerns down the road for a little longer, but the rapid growth in the levels of critical financial distress point to an economy that is waking up to the danger of debt ladened businesses in a higher rates environment.
“As we saw in the previous quarter, the strain being placed on companies has extended well beyond the consumer facing businesses with bellwether sectors, like construction and real estate, now in serious jeopardy as over 15,000 businesses face high risk of failure.
“Sadly, for tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival as the debt storm that has been brewing for years looks like it is breaking across the country.”
Across every sector monitored by Red Flag Alert, the levels of critical financial distress grew quarter-on-quarter in Q4 2023, highlighting how the current economic backdrop is having a detrimental impact on every corner of the UK economy.
The key sectors driving this increase continue to be the Construction, Real Estate & Property and Support Services sectors, up 32.6, 24.7 and 23.6 per cent respectively, alongside Health & Education (up 41.3 per cent).