With the sector gripped by buying fever, what happens next?
Another day, another acquisition.
This week we learned that Sourced has earmarked at least £10 million to buy estate and letting agencies, with around eight deals already in the pipeline.
Foxtons, meanwhile, has just acquired four regional businesses.
Lomond has undertaken more than 70 acquisitions and now manages around 72,000 properties while Dwelly completed its tenth acquisition of the year earlier this month.
Something is clearly going on.
The obvious explanation is consolidation. Lettings businesses, in particular, offer something buyers rather like, recurring income. Take Choices, for example, together with their innovative ARO (Advanced Rent Option) – always on the look-out for letting agencies, because scale is integral to owner Simon Shinerock’s ambition of raising standards across the board and bringing a better, more professional model to market.
Add increasing regulation, rising technology costs and a generation of successful independent owners contemplating retirement, and you can see why buyers and sellers are on the look-out for each other.
But I wonder if we’re looking at something bigger, because it isn’t simply agencies buying agencies.
Independence ain’t what it used to be
Consider the growth of the self-employed brokerage model.
At first glance, this looks like the opposite of consolidation. An experienced agent leaves a corporate, becomes self-employed and builds a business around their own name and reputation.
Except look behind them.
iad now has around 20,000 independent agents internationally. Other brokerage models such as eXp and Keller Williams operate on the same broad principle: the individual is independent, but behind them sits a substantial organisation providing technology, systems, training, marketing and infrastructure.
The corporation gets scale without necessarily carrying all the traditional fixed costs of larger enterprises.
And, importantly, some of the risk moves the other way.
If you’re self-employed and have a rotten month, there isn’t necessarily a corporate salary arriving regardless.
That doesn’t make the model bad. Plenty of agents positively choose the autonomy, flexibility and earning potential.
But it does make the word “independent” rather more interesting.
The agent can be independent while the infrastructure supporting them becomes increasingly concentrated.
Follow the infrastructure
And that’s happening elsewhere.
Technology businesses are attracting serious investment and combining products into broader platforms. Portals are stretching beyond simply advertising properties.
Zoopla now explicitly describes itself as moving from property portal towards a data-driven homeowner platform. It has more than six million homeowners tracking properties, has bought specialist new-homes portal newhomesforsale.co.uk and is investing heavily in AI.
Rightmove is investing tens of millions in technology and AI as it attempts to become more deeply involved in the transaction rather than simply advertising the property.
And now a US activist investor has accumulated a 6% stake in Rightmove amid speculation about what happens next.
So perhaps the greater consolidation isn’t really about who owns the estate agency.
Perhaps it’s about who owns the infrastructure on which the estate agency depends.
Look closely enough and we could be heading towards an industry containing thousands of apparently independent businesses sitting on top of a surprisingly small number of very large corporate networks, platforms and technology providers.
Capital and infrastructure become increasingly concentrated, while some of the costs and risks become increasingly dispersed.
A cynic might call that smoke and mirrors, but I wouldn’t go that far.
Scale can fund better technology, better systems, better compliance and investment that genuinely helps smaller operators compete.
But surely the next question is obvious.
What happens when the giants collide?
Consolidation rarely reaches a convenient point and stops.
Agency groups grow. Brokerage networks grow. Technology platforms grow. Portals expand into technology, data and transactions.
Sooner or later their territories begin to overlap.
Does one kind of platform eventually acquire another? Do today’s consolidators become tomorrow’s acquisition targets? Does capital from completely outside property enter and reshape the market again?
And then there’s AI.
AI makes scale potentially even more powerful because large organisations possess something increasingly valuable: data.
But AI is also capable of disrupting precisely the intermediaries that currently appear strongest. Rightmove’s recent share-price weakness has itself been linked partly to investor concerns about what AI could do to traditional property search.
Will AI make the biggest businesses more powerful because of the data, technology and investment they possess?
Or will it lower barriers, create entirely new competitors and make some of today’s apparently impregnable business models obsolete?
I haven’t the faintest idea.
And, frankly, I’m not sure anybody else does either.
So perhaps there is no end of the road.
Agency buys agency.
Networks gather agents.
Platforms gather products and data.
Eventually the platforms collide and suddenly, it’s open season – everybody buys everybody else.
Then technology changes the rules and we start all over again.
Maybe,
Until next time,
N.