Historically companies only float on the stock market, or raise additional capital, when there is greatest demand and they can squeeze the greatest value for money. So, this week’s announcement that three UK estate agents are looking to float on the stock market could be seen as confidence in the short to medium term or perhaps an opportunistic bid to cash in?
While it may sound a little cold to suggest that companies will only sell shares or raise additional funds as and when there is greatest demand and they can get the best value for money, this is only common sense in the world of business. The reality is that you only get a very short window of opportunity to float on the stock market and an unsuccessful float could impact the company’s image going forward.
UK real estate market
There are a number of reasons why the UK property market is going from strength to strength including the fact the UK refused to adopt the euro, problems within the European Union, safe haven status in the eyes of some foreign investors and a relatively buoyant UK economy. There are issues with regards to the UK government budget with yesterday’s £12 billion in welfare cuts attracting significant demonstrations from the general public. The road will not be easy for the UK government but perhaps short-term pain will lead to long-term economic gain?
More demand for regional property
London has been at the centre of the UK real estate market for many years now and in reality it is significantly detached from the rest of the UK. True, all UK regional property markets are based upon the UK economy but London attracts more than its fair share of overseas investors and the pricing structure is very different to that anywhere else in the UK. Even after the US led 2008 economic crash it did not take too long for international investors to see the London real estate market as something of a safe haven going forward.
However, thankfully there are signs that investors are now spreading their wings further across the UK with regional markets, both in terms of domestic and business property, enjoying a significant increase in activity. This has obviously impacted the turnover and profitability of the UK estate agency sector, hence the reason why the likes of Purplebricks, Hunters UK and Easyproperty are looking to increase their profile at some point during 2015 via the stock market.
Is this a sign that UK property is topping out?
The reality is that over the last decade or so there have been many attempts to talk down the UK property market but it still keeps bouncing back. We may well have seen some short-term blips and periods of consolidation but in general the UK market as a whole has performed much better than any of its European counterparts. There is no doubt that increased demand for UK property is behind the expected flotation of these three UK estate agencies but, as we touched on above, they can only sell when there is demand and there is certainly an appetite for UK property related stocks at this moment in time.