Today’s news that London estate agency Foxtons has closed six branches is probably a sign of things to come for the UK estate agency sector. This is an area of the market which has come under severe pressure in recent years. The downturn in the London market seems to have prompted Foxtons to take such drastic action although there are still 61 branches in the London area.
Slowing London market
Foxtons is not the only estate agency to benefit from the previous exceptional performance of the London housing market. This is a market which bounces back quicker than any other part of the UK in the aftermath of economic troubles. London properties stand head and shoulders above the rest of the UK in terms of value and have done for some time. Some areas of the capital have double-digit earnings multiple valuations – this has not been a market for first-time buyer. So, a slowing market is now leading to consolidation amongst the estate agency companies covering the capital. No surprise there?
As and when the London housing market does recover it will be interesting to see whether Foxtons bring some of the closed branches back online. Or is this a means of streamlining the company’s cost base to challenge the online attack which continues to gather pace?
Online property platforms
Working from relatively low cost bases, i.e. no physical branches, we have seen the emergence of some giant online property portals. They have been able to take on the major estate agencies on their own doorstep by using the Internet as a direct route into your living room. The ability to log on, check properties, look at pictures and view video coverage whenever you want has not gone unnoticed. We’ve also seen the emergence of fixed-price house sale listings which have “disrupted” the traditional percentage fee based income model.
The latest figures suggest that the online platforms are grabbing more and more market share. Ironically, while many people begin their search for a new home online the vast majority will approach local estate agencies to visit these properties. However, many online property portals are looking to extend their footprint by arranging visits to properties for sale.
Is this a race to the bottom?
While online property portals offering fixed-price listing fees and additional services often look attractive, do you really get good value for money? Your local estate agent will have an ear to the ground, a direct link with local property investors and have infinitely more knowledge about the local market. This is why we will always have estate agents right around the country even if the online arena continues to grow.
In the short to medium term we will likely see further cost-cutting measures across the major estate agencies of the UK. They may cite short-term property market concerns but this is an ongoing erosion of their cost base. As they have physical branches around the country their running costs will always be greater than the online portals. However, if they can streamline their cost base then they can still charge a higher rate than their online competitors knowing they offer additional services, local knowledge and a more hands-on approach.
Estate agencies may have lost the latest battle but they have not yet lost the war. There is room for both business models – offering greater choice to consumers.