More than 60,000 property firms at risk of insolvency - warning

More than 60,000 property and real estate businesses have started the year in ‘financial distress,’ a professional services and insolvency firm warns.

Begbies Traynor Red Flat Alert report, which measures corporate distress signals using company accounts and factual, legal and financial data from a wide range of sources, claims 62,176 property and real estate firms are in ‘significant’ financial distress while 6,228 are critical.

Overall, the research claims more than 47,000 UK businesses are on the edge of collapse, meaning they could enter insolvency at some point this year.

This figure was up by around 25% for a second consecutive quarter.

Across every sector monitored by Red Flag Alert, the levels of critical financial distress grew quarter-on-quarter during the financial three months of 2023.

The key sectors driving this increase continue to be the construction, real estate and property and support services sectors, up 32.6%, 24.7% and 23.6% respectively, alongside health and education, which was up 41.3%.

Julie Palmer, partner at Begbies Traynor, said: “After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impacting every corner of the economy.

“Now that the era of cheap money is firmly a thing of the past, hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances.

“For some, a better-than-expected Christmas may kick these concerns down the road for a little longer, but the rapid growth in the levels of critical financial distress point to an economy that is waking up to the danger of debt ladened businesses in a higher rates environment.

“As we saw in the previous quarter, the strain being placed on companies has extended well beyond the consumer facing businesses with bellwether sectors, like construction and real estate, now in serious jeopardy as over 15,000 businesses face high risk of failure.

“Sadly, for tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival as the debt storm that has been brewing for years looks like it is breaking across the country.”

Ric Traynor, executive chairman of Begbies Traynor, said there may be some respite if inflation reaches “more palatable levels,” which in turn should result in interest rates starting to drop.

He added: “Unfortunately, there are no signs of an easy fix and, with geo-political uncertainty continuing to rise and a hike in the national wage around the corner, the backdrop is hardly improving for an economy that is still firmly in recovery mode post-pandemic.

“For many businesses, I fear soldiering on in this environment will prove to be one step too far and I expect thousands of debt-laden businesses to start to fail this year.”