A potted history to give a sense of perspective of what might be coming: between mid-2007 and mid-2010, the top UK commercial agents shed 3,300 fee-earning staff, a decrease of around 20% during the deepest recession since the 1930s. Capital values fell by 24% between July 2007 and September 2008. Revenues continued to rise, at first. Redundancies came slowly, at first. DTZ culled 50 of its 1,800 UK staff in June 2008.
Rivals were then still half-heartedly denying the slump. “We will carefully control costs,” said Alastair Hughes of Jones Lang LaSalle, when asked if it was firing. “We have looked into all areas in terms of costs,” responded Jeremy Helsby of Savills. CB Richard Ellis’s Martin Samworth said: “We have no redundancy programmes in place.” Then came the ‘Lehman’ moment. On 15 September 2008, the rickety US investment bank collapsed.
Over the next nine months, values dived a further 26%. Between January and March 2009, almost every top-20 agent – including the above and Cushman & Wakefield, Colliers CRE, Strutt & Parker and Drivers Jonas – announced formal redundancy programmes. Some imposed 10% salary cuts. Combined revenues of the top 20 fell 17% in 2008-09 – but only by 6% in 2009-10. A pause for breath in 2011 saw hiring begin again in 2012.
Last month I suggested looking on the bright side, even though “the entire sector is poised on the lip of a 2007-09-shaped pit”. Since then the bright side has narrowed like a waning moon. Three weeks ago, CBRE was first with dark news, announcing the need to shave $300m (£260m) from global payroll costs. Last week the Bank of England pushed up the base rate and confirmed the start of a two-year recession.
On 2 November JLL gave a management-speak hint at what was to come in a Q3 earnings call. “In the context of a more challenging macroeconomic backdrop, we are focusing on reducing costs while also being selective about investments and growth initiatives,” said chief financial officer Karen Brennan, echoing 2008. The company spent $9.4m (£8m) on “severance and other related charges” in the three months to the end of September.
Capital values in the US fell 7% in the single month of October, according to Green Street. UK valuers have begun to prune values fairly hard. The hesitancy shown in the 2007-10 crash is thankfully absent. Over the past few weeks, 4% to 5% reductions in Q3 have been posted, with frankly overvalued sheds being hit far harder. The All-Property year-end values are likely to be down at least 10% from the summer peak.
The question troubling every big agent is this: what revised numbers for income and expenditure do we now enter in our 2023 budgets, in light of this darkening news? This time last month it was possible to frame credible scenarios showing 5% to 10% revenue falls coped with by halting hiring and ‘letting go’ of staff in small enough numbers not to trigger a mandatory consultation period – a process that may have already started.
The reputation of agents contemplating cuts will be tarnished or burnished by the way they behave over the coming months. In 2008-10 the swift brutishness of some came to the fore, as did the moderation and care shown by others.
Warning: both clients and staff do not forget easily. That said, it is mournfully easy to guess the conversations under way in the boardrooms of both benign and brutish masters.
Cut marketing spend by 50%. Cut expense budgets by 75%. Ban overseas travel. Mipim budget! Are you kidding? The hard stuff: “Are those computer nerds EVER going to make us a crust from proptech? Do we need QUITE so many sustainability experts? Shall we STOP pretending to be expert in [name of sectors or geographies in which the firm is failing to make progress]. “Let’s get back to our core competences.” Expect to hear that line repeated.
Peter Bill is a journalist and the author of Planet Property and Broken Homes