What's driving the recent trend in lettings acquisitions? [+ podcast]
It's a time of consolidation in the lettings industry, with frequent agency acquisitions and mergers across the UK as investors see opportunities while smaller agencies feel the bite of legislation, as Abigail Wilks, Head of Lettings & Asset Management at Redbrik, explains.
Acquisitions of estate and letting agencies are cropping up left and right, with a seemingly endless stream of announcements in recent months. This level of activity shows confidence in the future strength of the industry - particularly for lettings - as merger and acquisition (M&A) activity is often seen as a leading economic indicator.
The influence of the Tenant Fees Act
The consolidation of the lettings industry really kicked into gear back in 2019 with the Tenant Fees Act. That had a massive impact, especially on agencies operating in lettings without the support of sales activities. At Redbrik, we've always been propped up by the sales business but others that relied solely on lettings have since wanted to get out of the industry. There's too much legislation and regulation - the changes are constant and, if you've not got the money to be able to keep on top of those changes and educate your staff to keep them compliant, it's quite a lot for those small independents. A solution for some was to sell up.
The value in lettings activities
Today, agencies still in the industry have had time to adapt around the fee ban and become more efficient and streamlined. No longer a drain on costs, lettings has proved its value and resilience, ticking along in the background during lockdown for a continuous source of revenue. At Redbrik, we have a regular income stream with our lettings activities, which doesn't differ much each month whereas, with sales, it's all or nothing. You either sell the houses or you don't, and if you're not getting the instruction numbers you need, you're not where you should be.
That security means that lettings has become a valuable commodity, garnering heightened interest for investment. Acquiring another agency offers the chance to grow faster than organically. With an acquisition, you can immediately bring another 50 or 60 properties under your management. At a time of low stock, it's a really good income stream straight away. At Rebrik, we've always had it in the business plan to include acquisitions so we started them pretty early to grow the business and they do massively help with growing into where you want to be.
Getting an acquisition right
We acquired one agency during lockdown - Preston Baker Sheffield - and, as moving home was restricted to essential moves, we had that extra bit of time to be able to put all of our efforts into a new acquisition. This meant that we could easily work through and communicate with the landlords as much as possible within the first three weeks of purchasing the business - making sure everybody's settled, that the change in management was working out, which clients were nervous or not quite feeling or liking the change, and proving them wrong.
Of course, acquisitions are not the right route for all agencies. If you take on something too big and you don't factor in staffing, you're going to fail to provide the right level of service. If you lose those clients, you've wasted money. So you should start small, be really methodical, and make sure you're fully up to date on anything with that latest acquisition before looking ahead to the next opportunity.