Housing market downturn pushes UK estate agents to consolidate

Acquisitions have helped solidify Connells’ position at the forefront of the UK’s property market as the country’s largest network of estate agencies, according to chief executive Richard Twigg.

With 80 local agencies to its name after a string of takeovers including one of its biggest rivals Countrywide in March 2021, Connells is just one of a number of major property companies eyeing fresh acquisitions in a UK market trending towards consolidation.

“We remain acquisitive and seek to buy inherently good businesses,” Twigg told the Financial Times, adding that the downturn in sales presented more opportunities for large groups with strong balance sheets and big cash reserves to acquire smaller rivals.

Consolidation in the UK’s residential property market has accelerated in the past year as higher rates have hit sales and put pressure on smaller independent agencies.

“When markets are tougher, smaller [and] less successful businesses may look to sell,” Twigg said.

Foxtons, London’s largest letting agency, underlined that trend when it snapped up residential estate agency Ludlow Thompson on Tuesday for £10mn.

Like Connells, Foxtons has expressed its ambition to buy up rivals as it seeks to expand its letting business in the sales slowdown.

Other deals include last month’s sale of Chestertons, one of the UK’s oldest estate agents, to European real estate services and technology group Emeria, also for £10mn. 

One week earlier US-based real estate company CoStar revealed that it had tabled a £100mn bid for UK property portal OnTheMarket, which sent rival property site Rightmove’s shares down 12 per cent on the day.

Purplebricks, the online estate agent that promised to disrupt the market by undercutting traditional agents, also sold its business for just £1 to another online estate agency Strike after its turnaround plan hit a wall.

Since experiencing a pandemic boom, house prices have slumped as higher rates have sent mortgage costs up and purchases tumbling.

A study by property portal Zoopla has estimated that UK house sales are set for their slowest year since 2012, driven by a year-on-year drop of 28 per cent in mortgage-backed sales.

Although UK house prices recently increased for the first time since March, as sellers opted to put fewer properties on the market, the 1.1 per cent increase between September and October still leaves prices down 3.2 per cent compared with October last year.

This weakness in the sales market has pushed groups towards lettings, which have been made more profitable by rising rents.

These have been forced up by higher rental demand after buying became too expensive for many.

Rents in the UK climbed in July at the fastest pace on record, rising 5.3 per cent in the 12 months to July, the largest annual percentage increase since the Office for National Statistics started publishing the data in 2016.

Rents shot up 5.5 per cent in London in July, another record rate since the data series for the capital began in January 2006.

Groups such as Foxtons have since used acquisitions as a way to expand into the lettings market. 

Foxtons chief executive Guy Gittins said: “We know that operating within the M25 there are 3,600 estate agencies; it’s a highly fragmented market. That highly fragmented market for us is an opportunity for consolidation.”

Following its Ludlow Thompson acquisition, Foxtons said that it “is now a lettings focused business, with over 70 per cent of group revenue derived from lettings”.

Richard Donnell, executive director of research at Houseful, which owns the property portal Zoopla, added: “When it comes to investing for growth, the focus tends to be on lettings.

“It’s all about predictability of income stream. The lettings market is well suited to that narrative.”

Gittins said looking for “non-cyclical recurring revenue from lettings” had been an important pivot for Foxtons in recent years.

Older, independent agency owners are also more tempted to sell in a more challenging market, according to some property executives.

While acquisitions are largely opportunistic and aimed at increasing market share, the ability to gather more data on consumer behaviour and historic market trends has also provided larger groups with an incentive to expand through deals.

“When we make these acquisitions, we’re also buying old historic data that we’re able to place into our Foxtons’ business to generate even more opportunities,” Gittins said, highlighting Foxtons’ enhanced speed to market and ability to tailor offerings to better meet customer needs.

Twigg said that acquisitions have helped Connells achieve “enhanced offerings for customers and a growth of intelligence” having increased the amount of data it can analyse.

“Greater investment in software, data and automation of processes is going to deliver better experiences for the consumer and will support the profitability of the sector,” Donnell said.

He added that greater data capabilities achieved through consolidation may benefit consumers, who still have a large number of independent agents to choose from, but will now also have access to personalised offers from larger groups.

The ever-changing regulatory nature of the lettings industry is another aspect that makes scale an advantage. While Foxtons has 10 employees working purely on compliance, smaller rivals sometimes struggle to afford one, Gittins said.

“Lettings is a complex and involved process,” Donnell added. “It’s about embracing technology and software to drive efficiencies because once you’ve built the platform, you can put more into it, it’s just more efficient.”