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UK estate agents are racing to expand their lettings businesses as a booming rental market helps shore up profits hammered by a slowdown in home sales.
The rental market is proving a silver lining for estate agents that relied on sales to power the industry’s profits before a rapid rise in interest rates ended the UK’s house price boom.
While rising mortgage costs have throttled home sales, they have strengthened rental demand as buying a home becomes more expensive. Rents in the UK, which have long been supported by a shortage of supply, climbed in May at the fastest annual pace since 2016, according to the Office for National Statistics.
London-based estate agency Foxtons is looking to cash in by acquiring rival agencies in and around the UK capital this year to grow its lettings business.
“We’re not excited by lettings purely because the market is broken and the prices are going up,” said chief executive Guy Gittins, adding that a cooler market with more supply would allow Foxtons to win a bigger share more easily.
“Long term we are attracted to the stickiness of that revenue and the high- quality, recurring nature of that revenue,” he said. “That is essentially why we like lettings.”
Foxtons, which reported a 26 per cent increase in lettings revenues in the first half of this year, is not alone in trying to capitalise on the frenzied rental market.
Tim Hyatt, head of residential at Knight Frank, said the estate agency had invested more in its lettings business in the past two years than in any other period in the previous two decades. The group “substantially” increased the size of its rental team, he said, and trained all its staff, including property managers and negotiators, in lettings.
Estate agencies say they are taking on more staff to cope with the ballooning demand. Neil Short, who heads the prime London residential lettings business at JLL, said temporary seasonal workers and graduates are helping with the “crazy” volumes of inquiries, viewings and paperwork.
“You can come in on a Monday when you’ve only had the Sunday off and have upwards of 200 inquiries,” he said.
Foxtons and Winkworth, two agencies that are listed on the stock market, both reported a jump in lettings revenues in the first six months of the year.
Richard Donnell, head of research at Zoopla, the online property portal, said the lettings market has become gradually more important to estate agencies over the past two decades, in part because of its resilience in a downturn.
According to estate agency Hamptons, the average monthly rent across the UK was £1,283 in June, 28 per cent higher than in February 2020, at the onset of the Covid-19 pandemic.
But economists say the red-hot rental market is increasing the financial strains on tenants amid a wider cost of living crisis. A survey from the ONS last month showed that 43 per cent of tenants reported difficulty affording rental payments.
Rising rents have also led to accusations that estate agents are employing cut-throat tactics as competition for properties heats up. Campaign group Generation Rent said there is growing anecdotal evidence of agents withdrawing deals after tenants have paid a deposit in order to accept a higher offer.
Loïc Frémond, a 26-year-old lobbyist who is moving from Brussels to London, said trying to find a place to rent has been a fraught experience.
“Even if we do put in an offer there’s nothing stopping someone else who has more money putting in 200 pounds over asking price or offering six months upfront,” said Frémond, who is spending up to four hours a day looking for flats. “It’s extremely scary.”
Although mortgage rates have eased after better than expected inflation data in June, industry experts warn there is no quick fix to the limited amount of properties available to rent.
Andrew Wishart, head of UK housing at Capital Economics, said the lettings business should continue to help estate agencies weather a housing market facing falling sales and prices.
“The rental market is always going to be steadier than the sales market,” said Wishart. “Most of the time [sales] are OK, but you have these downturns once in a decade or every 15 years where the number of people buying drops really sharply.”
Home sales totalled 86,000 in June, 15 per cent below the same period last year, Nationwide said this week.
Analysts say increasing regulation in the private rental market, including requirements to make homes more energy efficient, are making managing properties harder, handing estate agencies another potential source of revenue.
According to Zoopla, only about half of private landlords have used estate agents to manage their property in the past two years.
But Short of JLL said the more pressing challenge is managing the expectation of landlords and tenants in such a tight market, even if getting deals was easier.
“People are committing to taking a property before viewing it,” he said. “Some people are just that desperate, they want to secure it now and worry about the rest later.”
