BLOG: Why has lettings become so important for estate agencies?

After spending 30 years working in estate agency, I have seen the balance of our industry change considerably.

For a long time, residential sales attracted most of the attention, created the excitement, brought in the big fees and, in a strong market, delivered healthy profits.

Lettings were often treated as the quieter part of the business, but that is no longer the case. Today, a strong lettings portfolio can be the most valuable asset an agency owns.

Sales income effectively starts again at zero each month. Lettings income is different. When managed properly, it is recurring, predictable and resilient. It gives business owners greater confidence to plan, recruit and invest, even when the sales market becomes difficult.

This is also why lettings portfolios have become so important to buyers, investors and corporate consolidators.

This is also why lettings portfolios have become so important to buyers, investors and corporate consolidators.

Recurring income provides greater security and can significantly affect the value of an agency.

However, the number of properties under management only tells part of the story.

Buyers look much more deeply. They want to understand landlord retention, average fees, profitability, arrears, compliance, contracts, team structure and whether the relationships sit with the business or depend too heavily on the founder.

A well-run portfolio of 1,500 profitable properties may be more valuable than 2,000 properties that have been poorly managed.

Preparation matters

This is where preparation really matters. I know from personal experience that building and eventually exiting an agency is about far more than producing a spreadsheet.

The founders and owners of an estate agency may have spent 20 or 30 years creating their business. They have built a reputation, supported their people and developed relationships with landlords across generations.

That has real value, but it needs to be recognised, protected and presented properly.

Too many owners wait until they are ready to sell before looking closely at how a buyer will view their business. By then, some opportunities to increase value may already have been missed. The best results often come when an owner starts preparing several months or even years before a transaction.

There are many moving parts. Contracts need to be robust. Management information must be clear. The income should be secure, and the business cannot be entirely reliant on one person. Buyers need to understand exactly what they are acquiring and feel confident that the portfolio will remain in place after completion.

Having someone alongside you who understands the detailed mechanics of what buyers are seeking can make an enormous difference. This is particularly true when that advice comes founder to founder.

Difficult markets

I have built a business, experienced difficult markets and gone through an exit myself. I understand both the commercial detail and the personal emotion involved.

It is rarely just a transaction for the owner, it is the result of a significant part of their working life – and that’s why I launched Pendleton London to help founders strengthen their businesses, identify where value is being lost and prepare for investment, acquisition or exit.

Because lettings may once have been considered the less glamorous side of estate agency. Today, it is increasingly shaping the stability, strategy and long-term value of the entire industry.

Lee James Pendleton (07881 915242) is the founder of Pendleton London, a specialist property consultancy advising estate and property agency founders and owners.