Commercial Property

For estate agents, markets rising or falling are better than stalled ones

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'Many estate agency firms will do well to break even this year, given the disruption to markets caused by the pandemic' (Stock photo)
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'Many estate agency firms will do well to break even this year, given the disruption to markets caused by the pandemic' (Stock photo)

Many estate agency firms will do well to break even this year, given the disruption to markets caused by the pandemic. Business owners will be looking at which areas may hold up best and help carry the rest of the firm. It may be worth transferring staff into those sectors, from the departments suffering most, as worked well during the last downturn.

This pandemic-related downturn is damaging in that it is the volume of deals that will suffer most, rather than the sharply reducing values, typical of the traditional economic downturn. Indeed, a wave of reducing values usually provokes deals, which generate fee income for agents. Markets rising or falling, are more profitable than stalled markets.

The international brands have deep pockets and a fall off in transaction-based activity can be partly offset by the steadier fees earned in the property management, valuations and advisory departments where indeed there may be increased business arising from the revaluation of developments.

A point of diversification for agents was always the split between commercial and residential markets, and it's interesting to look at how that's changed in recent years. Traditionally, almost all of the large firms of agents sold "second-hand houses". As firms were acquired by international brands, (which often did not sell "second-hand" homes) some residential businesses were separated from the mother-ship, or re-named or sold. Examples were the sale of the Gunne residential business after the acquisition by CBRE, and the rebranding of the Sherry FitzGerald commercial wing as Cushman & Wakefield.

While Savills sell second-hand houses and commercial property under its main brand worldwide, Savills in Ireland has retreated from the mainstream "second-hand" residential business in Ireland, but maintains a country-house department. Conversely, JLL only handled commercial property traditionally, but later moved into the residential business.

The conundrum with the residential business is margins are lower than commercial and it is staff intensive. Maintaining a network of suburban branch offices is extremely expensive. The more branches you have, the better your efficiencies of scale, but by the time the costs of centralised management support, research and marketing are apportioned, branch offices can become saddled with challenging overheads. Standardisation of the service offering and tight management appear to be the keys to success.

The residential market is also extremely competitive. The owners of modest houses will often invite up to five agents to inspect and pitch for the business and fees are always under pressure.

So, while the synergies appear obvious (every commercial client lives in a house) many firms have found it difficult to exploit that interaction. This, I suggest, is down to the difference between the two businesses. Residential clients sell one house, every thirty years or so, in a process charged with emotion, whereas commercial clients are dealing all the time, for business reasons.

All agents maintain "new homes" departments, regarded as a commercial activity, and sits more neatly alongside the commercial businesses, particularly in this age of "mixed-use" developments. The big win for agents over the last twenty years, has been the number of Irish housebuilders that evolved into major commercial developers, and became hugely valuable clients.

Irish Independent

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