Sunday, September 20, 2020
Real EstateUK

Property firms amongst worst hit sectors for businesses in ‘critical distress’

Property

During the three months to the end of March, 21 per cent more real estate firms moved towards the critical distress level

Property and construction are amongst the worst hit sectors for businesses in so-called ‘critical distress’, according to figures taken before the worst effects of the Coronavirus crisis hit.

During the three months to the end of March – so still early on in the first phase of the lockdown – 21 per cent more real estate and property firms moved towards the critical distress level with the number rising from 128 businesses in the final quarter of last year to 155 now.

Critical distress is usually the stage reached shortly before insolvency.

Across the wider economy over 509,000 businesses are in a slightly lower category – ‘significant financial distress’ – which is the highest figure since these measurements began according to the latest Red Alert report by insolvency experts Begbies Traynor.

In the January-to-March quarter some 15,000 more businesses were classed as being in significant financial distress with the research attributing the obvious economic impact to Covid-19 and social distancing measures.

Over the past year, businesses in the property sector experiencing financial distress rose by 17 per cent from 48,428 businesses in the opening quarter of 2019 to 56,421 in 2020.

The construction sector worsened by four per cent in the early part of 2020 with 65,456 businesses in financial trouble.

Smaller businesses – the backbone of the agency industry – are particularly vulnerable according to the Begbies Traynor figures.

Of the 509,000 in distress, 504,000 are businesses with under 250 employees; Begbies Traynor says that although the government has introduced support measures, including the Coronavirus Business Interruption Loan Scheme, some firms have struggled to gain access to the government-backed loans.

The coronavirus pandemic is a true ‘black swan’ event that has decimated short term business financial performance. Although it is still early days and with no end to the lockdown in sight things could get much worse, with the Red Flag research highlighting landmark levels of financial distress already, according to Begbies partner Julie Palmer.

With many SME’s yet to access government funding such as CBILS, many will simply run out of cash, particularly with the April pay run approaching and payment for furloughed staff still outstanding. The Red Flag research demonstrates that many businesses were being cut close to the root before this crisis started to affect the economy and may be left with little option but to cut their losses with the knowledge that they would never be able to pay back a loan, no matter what the terms, she said.

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