Over the past years, there has been a trend in letting acquisitions where smaller agencies are being consolidated by larger firms. This leads to the question of whether small and independent agencies will become a thing of the past.
According to the Financial Times, “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.”
To put this simply, as the price of mortgage rates has increased, there are fewer properties on the market but more tenants wanting a privately rented property.
This creates higher competition between letting agents and puts more pressure on smaller, independent agencies. This means larger agencies may be looking to merge with smaller ones to recoup profits as well as ease other pressures such as portfolio targets.
Due to the consequences of a pandemic and the rise in inflation rates, agencies are facing pressure to find and let properties, with a lack of availability of housing stock.
Does this mean that small agencies will be a thing of the past?
Acquisitions have been a strategy for agencies to grow for years but are becoming even more prevalent in 2024.
With rental prices increasing, and the supply of properties being so low, acquisitions help to counter the increasingly competitive lettings environment. The Financial Times believe that “downturns in sales presented more opportunities for large groups with strong balance sheets and big cash reserves to acquire smaller rivals”.
Higher rental prices are also a key motivator for larger letting agencies. With sales of properties decreasing, lettings are becoming an important revenue stream.
The key trend so far in 2024 has been the lack of stock in the market. This causes the larger agencies to take advantage of their balance sheets and acquire new smaller agencies. With higher rental prices, larger agencies can use smaller companies to increase their revenue with less competition.
Check out more monthly key figures for the private rental sector.
Integrating with technology can help to streamline the lettings process. So when an independent agency has yet to embrace any RentTech tools, it can face larger struggles within the market. With the Renters (Reform) Bill and constant new legislation, the requirements for agents are constantly changing, and a lack of technology can cause non-compliant agencies, creating stress and pressure for an agent.
The Financial Times reported, “Older, independent agency owners are also more tempted to sell in a more challenging market, according to some property executives”. Meaning the lack of technology could influence more traditional agencies to pursue an acquisition from a larger agency.
The use of data is also attractive to larger agencies when merging with smaller agencies. Through acquisitions, larger letting agencies access the data from smaller companies. With a larger balance sheet, larger agencies can use a smaller agency's data to increase the speed to market and understand customers more.
Larger agencies also benefit from access to data a smaller agency’s data as there are more opportunities for more personalised offerings that benefit their customers, with also the capability of handling compliance and new legislative changes.
The increase of larger letting agencies acquiring smaller businesses is likely a response to the current economic climate and the cost of living crisis.
Business Sale Report explains: “In response to the slowdown in house sales, larger, progressive agents are increasingly looking to bolster their lettings business by hoovering up smaller regional operators, with several firms adopting a strategy of targeting small lettings firms in one particular region”.
Through acquiring small agencies, larger businesses can expand to a new area of lettings, without spending an excessive amount of money on start-up costs. As most letting agents can work from home, larger agencies can expand without having to worry about certain costs and have a reliable income stream.
When acquiring and maintaining their presence as a letting agency community, larger agencies can help boost and maintain their portfolio by acquiring a smaller agency's property. The pressures of portfolio targets can create pressure on all letting agencies, which can lead larger agencies to acquire smaller ones to ease that.
Find out more about the trends of the state of the letting industry in our ebook.
Want the latest lettings news delivered straight to your inbox every week? Sign up to our mailing list and stay up to date.