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Future of estate agency really does look disruptive: Meet the ‘frenemies’ – Rightmove and Purplebricks

fIXFLO news story

A new report forecasts that the growth of no-branch agents over the next five years really will prove deeply disruptive for the industry as a whole.

The growth of online and hybrid agents will “impact traditional players, potentially driving branch closures” and driving industry consolidation, says the report released to investors yesterday evening.

High street agents will increasingly hybridise, and this, the report says, will have an impact on Rightmove’s per-branch revenue model.

The report, “The future of estate agency: Who wins?” by City analyst William Packer of BNP Paribas Exane, describes Rightmove and Purplebricks as “frenemies”.

It forecasts a transition to a hybridised industry consolidation, with the potential for a scaled Purplebricks to limit Rightmove pricing power.

The report forecasts that online agents will double their market share from the current 5% to 10% within the next five years.

But it also suggests that the online market share could be as little as 7%, or as much as 20% by 2022, and says it expects traditional agents’ share of transactions to “remain significant”.

If high street agents had an 80% market share, the report predicts that there would be just under 16,000 physical branches within the next five years.

However, cost savings could partially protect branch economics as the digital evolution of the industry progresses.

Importantly, the report forecasts that Rightmove and Zoopla could “offer quasi hybrid like functionality – for example to facilitate interactions between agents, vendors and home seekers”.

The report forecasts that Purplebricks will play a key role, and that Rightmove will remain the key winner as the industry evolves, because it is “broadly agnostic” to the industry structure.

That said, it warns that Rightmove is the most exposed player, compared with Zoopla which has been careful to diversify.

However, the report goes on to say that Rightmove’s Optimiser product is an important but under-rated growth driver for the firm, representing £20m of its revenue.

The report, which runs to 108 pages, looks hard at both Zoopla and Rightmove. While Exane concludes that Rightmove is its preferred player, it also ups its targets for Zoopla, which it says has performed impressively in less than a decade.

It says that property portals, especially Rightmove, “are an important vendor requirement”.

The ‘deep dive’ document also examines the argument that traditional agents manage chains, whereas online agents use call centres and their own platforms.

It says, too, that Purplebricks has a “structurally lower and more scalable cost than a traditional agent”.

It suggests that Purplebricks spends 50% of its revenue on staff and rent, whereas a typical traditional agent spends 65%. The report expects that gap to grow as Purplebricks scales through its Local Property Expert network.

The report also wonders how traditional agents can make more money. Suggestions include monetising more of the transaction.

However, it does raise “question marks over instruction conversions to transactions” where online agents, including Purplebricks, are concerned.

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Source:: Future of estate agency really does look disruptive: Meet the ‘frenemies’ – Rightmove and Purplebricks