I don’t usually write about the same subject twice but this subject is an important one which is very relevant to letting agents and a lot has changed since I wrote about it last year. The topic is the rapid consolidation of the veterinary sector. Over 50% of all veterinary practices are now owned by a small number of huge chains owned by private equity investors. My own vet was taken over 18 months ago and the result was that service standards deteriorated and fees rose sharply, so after over 30 years as a customer we left.
Unfortunately, the vet that we moved to was taken over by another big group a few months later and the same thing happened again. If anything, the decline is service standards was even worse. All the experienced vets left and were replaced by newly qualified people who I assume were cheaper to employ. Even the receptionist left and was replaced by someone who seemed to have absolutely no interest in animals. Despite this the fees increased sharply.
Over 50% of vetinary practices are now owned by huge chains.
We chose our next vet with a great deal more care and we deliberately chose a practice that was set up by a vet who had sold out to a chain five years ago and wanted to work as an independent again. Many of the vets have come from our original practice and one of them told me that she had left because she could not bear to work for a practice that put profit above the needs of its patients.
The trigger for this article was a recent piece in The Times that said that problems in the veterinary sector have become so serious that the Competition & Markets Authority has now launched an investigation into anticompetitive practices. As a result the value of one of the largest firms in the sector has dropped by over £500 million. It seems ironic that investors who chose the sector because of the loyalty of the customers have ended up killing the goose that laid the golden eggs.
I am beginning to see signs that the same thing is happening in the letting sector. Most of the large firms who are buying letting agents do a good job of maintaining service standards and keeping the staff and landlords on board. However, some are not as good as the others.
Five steps of big business
The first thing we see when a letting agent is taken over is that rents increase. This is entirely legitimate. A letting agent’s job is to maximise returns for their landlords and many agents have been very lazy about ensuring rents rise in line with market forces. Of course, a biproduct of higher rents is higher fees for the letting agent which at a time of such high inflation are very welcome.
The second thing we see is that landlords are actively encouraged to update their properties. They are told that a new kitchen and bathroom that costs £10,000 might mean an increased rent of £200pcm which is a return on capital of 24%. Landlords are grateful for the advice and the agent is pleased to see another increase in fee income.
The third thing we see is that landlords are encouraged to switch from let-only to a managed service. Again this is sound advice. Very few landlords know enough about legislation to manage their property safely and the fines for a mistake are huge. Again the agent earns extra fees in return.
The fourth thing we see is a push to sell ancillary products such as mortgages, building and contents insurance and rent protection achieves another increase in fees.
The fifth thing we see is an investment in technology to improve customer service and streamline the letting process. So far so good but in their impatience to increase profits some buyers are cutting corners and are running the risk of losing their customers. For example an automated service for reporting and instigating maintenance jobs and repairs saves everyone time but insisting that maintenance issues can only be reported through the app just alienates people. Cutting surplus staff is an acceptable to improve productivity but if staff numbers are cut too far service will decline and customers will leave.
It’s not all about the money
As a business transfer agent, we have always encouraged sellers to consider factors other than the price when they are deciding on which offer to accept for their business, but the culture of the buyer’s business, their client retention rates and their staff turnover levels are becoming important factors to consider.
The attraction of the letting industry to investors is the stability of the income but those that allow service standards to slip will quicky learn that customer loyalty cannot be taken for granted.
Adam Walker is a business sales broker who has worked in the property sector for over 40 years.