Shutdown! City Brokers Call ‘Death’ Of High Street Agent Offices

Hotshot city brokers Peel Hunt have released a report slamming traditional estate agents, warning investors that 2017 will be “another year of structural change” for the UK’s property industry.

The report singles out agency stalwarts Foxtons, Countrywide and LSL, gloomily predicting “an increasing number of high street estate agents will close in 2017″.

It goes on to claim that traditional agents business model is unsustainable if there are any further cuts in commission rates, citing the negative impact of the Government’s ban on letting fees, slowing transactions and pressure from fixed price agents as further industry headwinds.

“We expect capacity is set to come out of the industry…the proposed ban on letting fees could be the death knell for some agents” the report predicts.

“In our view, the businesses that have adopted new technology and accepted that consumer attitudes to estate agency are changing fast have the potential to thrive, even in a market of slower transactions…however, those that don’t accept that change is afoot are likely to fare much worse.”

Peel Hunt forecasts a 24% drop in sales at Foxtons in 2017
Peel Hunt forecasts a 24% drop in sales at Foxtons in 2017

The brokerage house calls LSL’s profit targets “increasingly unachievable”, encouraging their investor client base to sell the stock as soon as possible.

After their share price dropped 46% in 2016, the UK’s largest estate agency Countrywide are also on the brokers hit list. Peel Hunt focus on the sheer volume of branches being detrimental in the current market, however their recent online only offering meant the brokerage house recommended investors simply reduce their holdings in Countrywide, rather than sell them completely.

Interestingly, the report is optimistic about traditional agency Savills. The brokers like the commercial property business and predict a healthy share price rise for the high-end agent in 2017, advising investors to buy the stock.

Conversely, the report is glowing in it’s recommendation of hybrid agency Purplebricks as “the dominant player in the hybrid estate agency industry and well placed to become the largest agent in the UK in the next few years”.

Gushing in it’s praise, analysts argue Purplebrick’s 47% share price spike in 2016 and the 108% increase in instructions in the past six months mean it is in line to replace Countrywide as the prevailing agency in British property.

“The last few years have seen a rise of hybrid and online agents with no high street presence (hence low overheads) but a full service offering through a network of estate agents who use home as their offices. Over the last 18 months we estimate that the market share of hybrid/online agents has doubled to 4%, with Purplebricks the dominant player with over 60% of this market…we are confident that the growth is set to continue.”

Entrepreneurial brothers Michael (left) and Kenny Bruce founded Purplebricks in 2014
Entrepreneurial brothers Michael (left) and Kenny Bruce founded Purplebricks in 2014

DMZ reported on the troubles of Foxtons and Countrywide in 2016 and if Peel Hunt’s report is anything to go by, these problems aren’t leaving any time soon.

The most startling statistics are surely traditional agents plummeting share prices compared to the spike at Purplebricks. Combine this with the migration to a hybrid offering for nearly all major agencies and DealMakerz also predicts a rough year ahead for those who reject the impact of tech in real estate, or those who don’t have multiple revenue streams, like Savills interests in commercial for example.

Calling a death of high street agencies is of course an exaggeration, but it’s important to remember Peel Hunt’s close relationship to Purplebricks. The city brokers were appointed joint Corporate Broker on the hybrid agencies share in June 2016, they even boast about signing their ‘new corporate client’ in the news section of their website…