“A lot of people have learned that they can work at home, or that there’s other methods of conducting their business... When change happens in the world, you adjust to it,” so said Warren Buffet, the 89-year-old CEO of Berkshire Hathaway, on Monday, in his four-and-a-half hour long investor call.
A fitting start to (hopefully) a hard hitting opinion piece...
Arguably, one of the most successful business leaders and investors talking about the return to work for the many, including his own staff.
These last couple of months have probably been the most difficult for industry leaders. Some businesses which stated they were working with digital practices clearly weren’t.
Others obviously were. If you believe my old boss Tim Hyatt in this recent piece, Knight Frank had a seamless shift to the new way of working. Technological transition must already have been at KF, but that wasn’t what I really took from the article.
Personally, I am not sure he can really claim a seamless transition in such a short period of time with such a significant impact on underlying day-to-day business. How can these changes be really tested in anger in the current market?
It was other elements of his mindset that interested me...
“Knight Frank quickly readjusted its approach, sensitively tipping the balance from sales focused to an increased focus on constructive advice for our customers and support during this very uncertain time.”
A clear mentality shift of the way they did business. Less transaction focus and more service and advice focus. A trend other sectors, particularly the legal services industry, have been wrestling with for years - never have we had to think about it previously but now, in the absence of the transactions, this is a logical step to stay front of mind.
It made me consider some steps these leaders will have been going through recently. There will definitely have been phases of discussion and strategy planning:
1. Denial. This isn’t a pandemic. Nothing changes.
2. Dawning realisation. Okay, this is more serious than we thought. What the hell do we do?
3. Shutting down operations. Okay, we all need to work from home. Christ. How do we run this thing?
4. Shutting down operations part two. This is doable, we can do this. IT teams are either superheroes or abject failures. Probably both.
5. Staff adjustment and calm before the storm. I love this working from home, or I have just been furloughed. Amazing, either way.
6. (Mild) Storm. The tech is holding up, we can be creative. Our teams are working well and are forgiving given the situation. We are all in it together, but some are getting frustrated.
7. Planning on getting back to work. How do we now bring people back together in the offices?
8. Long-term planning. What do we do as a business now?
So this really is about steps seven and eight. Just what do businesses do in the short and long-term about coming back together?
Let’s look at the short-term
The first thing needed is for senior leaders to genuinely ask their team whether they indeed want to come back into an office. There will be no ‘one licence fits all’ here. There will be no way of enforcing any sort of timeframe on this.
No way, not at all, never.
How will HR deal with this? How will leaders deal with a workforce that cannot be pressured into making a decision about themselves returning to work?
Never has there been a time that leaders need to listen to the requests and needs of their staff as to a ‘return to work’.
Just look at the ‘advice’ given out by the NAEA Propertymark chief executive, Mark Hayward, yesterday about returning to work. This was all part of a wider reaching webinar with Rightmove. (Sadly, for those of you no longer associated with Rightmove, you will not be able to watch!)
Some key points about Mark Hayward and the NAEA’s advice below (thanks to Nigel Lewis for compiling in this article).
For viewings, it was clarified that:
• Viewings will not last more than 15 minutes.
• PPE will have to be worn.
• Sellers will need to have PPE and have disinfected the property prior to viewing, particularly door handles.
• Only two adults per viewing.
• Viewings will have to be staggered – days of ‘open houses’ are over.
And for branches:
• No hot desking.
• Screens between workstations.
• Separate in and our doors.
• All surfaces disinfected regularly.
• In-branch and appraisal/viewings staff separated.
• Protective equipment to be supplied to staff.
My simple question is why would you want to return to the office that is described above?
My next question is from the perspective of the customer. Why would they ever want to come into this office described above? Or, on accompanied viewings for that matter?
Combining these social issues with actual business and financial issues shed more light on the challenge and the need to cut overheads.
Consider research just carried out by TwentyCi. Considering a transaction volume fall of 20% and a 20% hit in property valuation prices (to stress these are mathematical model inputs and not actual opinions of the market conditions), it suggests a hit to the total income of the sector of 36% or over £1.1bn.
Adding in delays to completions, it suggests a further loss of £25,000 per branch (assuming a 36 day delay or a 20% extension to the process).
To quote Colin Bradshaw of TwentyCi: “Based on our analysis of our up to the minute whole of market data the cash impacts are clear, these are clearly once in a cycle events but their longer term impacts will be dramatic.”
“Much lower market volumes and longer completion times will place a huge strain on businesses with many knock-on consequences.”
No matter what grants or schemes you have coming from the government, there is going to be a significant hole somewhere.
So there you have it. There is no doubt on branch closures in the short-term. The market just cannot sustain it based on current financial or social pressures.
Industry leaders will know this and should be planning for this already with an overall view of how it impacts the wider business and, more importantly, staff within it.
I have no doubt this will then move wider to 75% of all branches closing within five years.
A contentious view, perhaps, but one that carries some support.
Harry Hill, ex-CEO of Countrywide and current non-exec at Hunters, states: “I don't think that the reduction in the number of offices will be technology-driven (after all, most good agencies now have access to systems that 10 years ago were unthinkable in scale and complexity) but more likely driven by the need to reduce the disproportionate cost of rents/rates/service charges etc to pay for accommodation that very few, if any clients ever now visit in an environment where fees seem to spiral ever downwards whilst all other costs inflate.”
And this is the point, high street offices no longer make any sense in the sheer volume we currently operate. What is the point to having back-to-back estate agents on our high streets?
Here is the basis of my 75% of branches close quote. I simply don’t see the point of this model.
Others disagree. Ed Mead, Viewber CEO and ex-Douglas and Gordon Director, states: “I think 75% is probably heavy, but would suggest as many as 50% will radically change the way they resource their operations.”
Mal McCallion agrees, saying he “thinks 75% is high, certainly 40%-50% of those that were there in January will go”.
McCallion, MD of growth firm Growtion, goes on to make a valid point: “I think that there will be governmental reactions to closures that will enable the remainder to stay put, as there is a social/mental health element to having a community focal point (high street) that will stop the complete decimation of businesses there - including agency.”
The point I make is whether agent branches are actually real focal points or are they going to be a thing of the past?
You only need to understand other sectors that used to use the high street to provide a vital service. Banks haven’t needed a global pandemic to start this shift of moving emphasis from the high street. Between 2015 and August 2019, over 34% of bank branches shut down, according to a Which? Report.
In real terms, this was a drop from 9,803 to 6,549 in that time period. I remember a family quiz I organised about three years ago. One of the decider questions I put forward to test the final two were how many estate agency branches were there.
Some 19,780 was the answer. More than double the number of banks back in 2015. So does this mean we reduce the number to just shy of 5,000?
Do I need to talk about travel agents? Do I need to talk about recruitment consultants? Very few survive, either in volume or locations as prominent as they once had.
One suggestion muted by some, and I am quite a supporter of, is the ‘hub’ office. I like the way Sandra Jones, Director of Dataloft, describes it.
“There is another vision for the physical presence - the rise of the agency office ‘experience’. A hub could be a place to go to browse room sets, VR, furniture layouts etc.”
The talk of ‘experience’ is an interesting one. Does this move again to the opening point raised by Tim Hyatt of Knight Frank about the buying experience being more of a consultancy than an actual transaction?
Jonathan Stein, CEO of Vaboo, picks up the story here when considering if he was starting an agency today. “I wouldn’t even call myself an agent. I would position it myself more of a concierge-type service.”
The talk about experience is an interesting one.
Bringing Mal McCallion back in again. “Change in models is inevitable - the bulk of the work will be done behind the scenes in hubs, or at home."
"High-commission, service-oriented businesses (with coffee bars, of course) will remain as property consultancies rather than specific buy/sell/let/rent moment-in-time operators.”
Again, this talk of consultancy. Experience. Advice.
Kristjan Byfield, an agent in Shoreditch as well as a PropTech entrepreneur, states: “The human role of client-facing agents will be there to deliver expert local knowledge (area and market), first-class hands-on concierge-style service and killer sales techniques”.
These discussions continue.
This all looks at this changing role of the agent as much as the office. They go hand in hand. Do agents have the skillset to shift so sharply to a new type of role? That of the consultant and advisor, rather than deal maker?
There is a general consensus here that the impact on the agents themselves will be rather severe. Right now, evidence from GetAgent suggests 90% of agencies have now taken advantage of the government’s Job Retention Scheme.
This is not an easy subject, so let me bring in Harry Hill once more: “I’m passionately of the view that with (almost certainly) shattered pipelines/very subdued future (certainly short and medium-term) volumes and (probably) at best stable, but more likely falling house prices, the only agents that will prosper will be quality operators that utilise high quality management information systems, employ the very best people that are available and charge sensible fees to justify a high quality service.”
Another career agent and ex Managing Director at Romans, Iain White, agrees: “I think we will see the elite survive in each of the suggested models. The rest will fade away to nothing or so little so as to not matter.”
Iain went on to give me his top 10 tips on sorting this all out – likely, given his roles now as a consultant and trainer:
1. Being average will no longer cut it
2. Customer must be a main focus
3. The best people win no matter what model, so look at your pay and reward set up
4. You don’t need lots of people, you need the best you can afford, empowered to deliver great outcomes to the customer
5. Train your people on skills, mindsets and attitude constantly
6. Get the wrong people off your bus quickly
7. Keep disrupting yourself as a constant in your business
8. Don’t kill dissenting voices from your leadership team. In fact, encourage them to challenge your ideas when appropriate
9. Be unstoppable
10. Be relentless
I agree (with regret) that this recent sad situation is going to accelerate the demise of the estate agent role as it is today.
Those who are good - and I speak for both the agency as well as the actual agent - will survive and likely prosper. Those that are weak will not survive.
To quote Antony Slumbers, a popular writer and speaker in the area of space as a service, this is all “the cycle of capitalism”.
Should 75% of branches close, that really will be a considerable full stop for the high street.
I was going to leave one final word to talk about online agents and how I think they will deal with this market. I think 2000+ words is enough for today. Let’s leave that for the comments and have a discussion about their position.