Tough times ahead for those in the real estate sector.
The number of companies falling into administration increased by just under 5% over 2019, according to new analysis from KPMG.
A study of notices in the London Gazette shows that a total of 1,403 companies went into administration during 2019, compared to 1,341 in the previous year. The rise was driven by a spike in insolvencies in the third quarter of the year, during which 420 firms went into administration including the likes of Jack Wills, Karen Millen, Late Rooms, and Eversmart Energy.
The final quarter of the year, however, saw insolvencies fall back to more typical quarterly levels, with 311 administrations between October and December. Notable cases included the greetings card retailer Clintons, Toto Energy, and women’s fashion chain Bonmarche.
Blair Nimmo, head of restructuring for KPMG UK, said: “2019 was a year characterised by profound political and economic uncertainty, with consumer confidence remaining fragile and companies continuing to bear the brunt of rising overheads and increased costs. While many businesses battened down the financial hatches, adopting a prudent and cautious strategy, for some, the challenging trading conditions proved to be a bridge too far.
“Nevertheless, it’s certainly not apparent that we are about to see an influx of insolvencies over the months ahead. December’s election result brought with it a degree of certainty, and business confidence seems to have responded positively.
“While certain sector-specific challenges remain, we would encourage companies to continue to focus on good financial housekeeping. Keep a tight grip on cash and costs, focus on operational efficiencies and maintain a clear visibility over supply chains, where events that are out of your control can have a significant knock-on impact on your business.”
Once again, the failure of a number of high street names dominated headlines over 2019. However, despite a small increase in the number of retailers falling into administration in the final quarter of the year, the number of high street names falling into administration over the full year actually fell sharply – from 170 in 2018 to 133 in 2019.
However, it was a tougher year for those in the building and construction industry, which saw 254 administrations, compared to 216 in 2018. It was also a challenging year for companies across the UK real estate sector, which saw 69 administrations, up from 53 in 2018, with continuing pressure on activity levels and margins.
Blair Nimmo continued: “It’s certainly no surprise that we have seen an increase in real estate insolvencies over the past 12 months, particularly when you consider two specific drivers of activity. Firstly, companies that specialise and support residential property development and investment were significantly affected by persistent geo-political and economic uncertainty. And of course, the demise and ongoing restructuring of a large number of high street retailers is having a profound impact on commercial property income and values.
“Capital-constrained landlords will struggle to adapt to the structural changes affecting the sector, which require substantial investment to implement repurposing strategies. This is a trend we are likely to see continue well into 2020, as the full impact of retailers’ store closure and estate rationalisation programmes take effect.”
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