Insolvency firm Begbies Traynor says the estate agency and property industry sector of the UK economy has seen a big rise in the number of firms showing what it calls “significant financial distress.”
In its latest Red Flag warning report, highlighting companies with apparent difficulties, it says the property sector - often considered a bellwether of the UK economy - has suffered a 13 per cent increase in the number of businesses in significant financial distress between the final quarter of 2018 and the same period last year.
This is the highest year-on-year percentage increase across any sector measured in the company’s latest report.
“The property sector continues to struggle with construction output falling and pre General Election and Brexit uncertainty having an impact” it warns.
It says the worst hit sub-sector within property is what it calls “businesses involved in the buying and selling of their own real estate” - specifically property investors - who experienced a 30 per cent increase in the 12 months under review.
The construction sector has also fallen victim to the current economic conditions, with a slump in investment in the sector resulting in seven per cent more companies isuffering from significant financial distress.
In the wider economy, Begbies Traynor says the overall number of businesses in significant financial distress has risen to 494,000 - the highest number recorded by this research, with support services and retail joining property and construction as the sectors particularly badly affected.
The firm says a considerable number of those companies in distress were formed after 2014 “demonstrating that younger businesses are the most vulnerable to failure.”
With this continued increase in significant distress there is a danger that in 2020, this distress figure could exceed 500,000 companies it says.
"Businesses and the UK economy as a whole will want to avoid a repeat performance of 2019, where distress increased to record levels on the back of ongoing uncertainty around Brexit. These figures clearly demonstrate the impact of this indecision, and with political certainty and a clear Brexit path, UK businesses should, at last, be able to plan for 2020 with a greater sense of clarity” says Begbies Traynor partner Julie Palmer.
“Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues” she adds.
The company says its definition of 'Significant' distress is to include those businesses with minor county court judgements - of less than £5,000 - filed against them, or those businesses which have been identified by the Begbies Traynor proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators, including those measuring working capital, contingent liabilities, retained profits and net worth.