Has it really only been five years or so since PB’s were the darlings of “The City”, with blue chip funds queuing up to invest, and financial journalists pronouncing the “death of High Street estate agency”? Boy, how time flies. By comparison, PB’s share price today stands at an all time low of 20p (a decline of 95% since 2018), a market value of only £60M, and faces probable sanction later this year for breach of the Housing Act……could it get much worse?
In many ways PB’s is a real “hero to zero” parable of intoxicating greed, unrealistic expectation, and more obviously perhaps – a lack of understanding of how a mature residential property market works here in the UK.
Whilst it is beyond question that the internet has been a game-changing platform for virtually every business on the planet, I always instinctively felt that the online estate agency model at some point would find its natural limitations – in terms of both ROI (return on investment) and service/operations.
Firstly with regard to ROI – UK estate agency can be a highly profitable business subject to scale, expertise, culture and branding. But overall profitability is also dependant on a number of variable factors that lie beyond the control of participant firms, such as government policy, housing supply/demand, mortgage availability and competition. So the £200M+ of investment poured into PB’s by its many and varied investors, was to me always looking like a tall order to recoup.
Secondly, the selling and renting of residential property here in the UK has always (in general terms) been more complicated than it looks (to an ever critical public). Put simply, pro- active estate agency is the “glue” that sticks a deal together, and subsequently keeps it on track by managing the needs/expectations of landlords/tenants and buyers/sellers. This service is undoubtedly made more difficult without either the requisite resources (due to low fees), and the available time and interaction of the agent.
The irony is that I firmly believe that there is a place for a cheaper “paired down service” model here in the UK, but the combined market share of PB’s ,YOPA, Strike etc was always likely to be limited to well under 10 per cent of the total UK market (it is currently 6.7% down from 8% in 2020).
More importantly perhaps (and with hindsight), it is easier to see now that PB’s emergence was merely an evolutionary step on the estate agency landscape, rather than the “disruptor” revolution that most market analysts had forecast. So no big deal really, as there will always be home sellers who want cheap fees and a “light touch” service, and now they have a natural home in Strike, YOPA, PB’s etc.
Having said all of that, how patient will PB’s shareholders continue to be after years of losses, faltering top line growth and a dwindling cash pile? Sadly, for them it gets worse, as since lowering their full year adjusted cash profit forecasts last November, the PB’s faces legal action from hundreds of former agents hired on self employed contracts. The basis of their claim being, that they were treated as employees, and therefore entitled to both benefits and pension contributions.
However, despite the above, two major fundamental questions remain – 1) Why after two years of a bullish UK property market cant PB’s turn an operational profit? And 2) How viable is PB’s on-line /low cost business model when dealing with the “gritty” nuts and bolts business of letting and property management? No doubt we will see.
For sure, major mistakes have been made – particularly their well documented global expansion strategy, but if you can’t make money in a bull market – is there really any hope?
The author of this article is Peter Nicholls, CEO of Ideology Consulting Ltd. For more information about Ideology Consulting, go to www.ideologyconsulting.co.uk