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Twenty years ago, if you wanted to expand your estate agency brand, you’d look at the next county – and you were doing well if you moved out of your home region. Now, British agents are increasingly looking much further afield, and expanding residential brands to global markets.
Commercial property has long been a global market with firms such as DTZ expanding internationally. But residential, at least at the top end, is now beginning to catch up.
The leaders have been the larger agents, particularly those dealing in premium property (such as Savills) and those that are already involved in international markets on the commercial side (such as Chesterton Humberts). But residential brand Winkworth has also got involved, building up networks in France and Portugal, and so has franchise Fine & Country – now in the Middle East, Cyprus, Malta, Madeira, South Africa and the Channel Islands.
WHAT’S THE ATTRACTION?
The rationale is simple, as Bill Siegle, senior partner at Cluttons, shows. “We’re in a global economy,” he says, “and the growth rates for India and the Far East, for instance, are so much more attractive than in the UK and Europe. A lot of our clients over here are international players. So our strategy is to go for growth, but it must be profitable growth.”
That’s not always driven simply by the residential market. Andrew Hawkins says that, “The decision to open an office depends on Chesterton Humberts’ company strategy as a whole, not just the residential business.” Abu Dhabi for instance is a multidisciplinary office, with commercial as well as residential business and a leasing team, all currently quite busy.
He believes that, “RICS is becoming very much the model for dealing with property in the Middle East”, particularly, but not only, on the commercial side. That raises the question of whether estate agency has become something of a UK competitive advantage; certainly Chestertons sees RICS membership as a major strength that they can use globally to secure business. “For a lot of the larger UK firms the way they operate is seen as a mark of quality.”
COLD START, LICENCE OR FRANCHISE?
So far, most agents have preferred to expand through licence or franchise arrangements, rather than setting up their own offices. For Fine & Country, of course, franchising is part of the company’s DNA anyway, but entering a market with a local partner also helps to overcome the difficulties such as different regulations business cultures.
Bill Siegle says most of the firm’s overseas businesses are licensed. “They trade under our name and have to adhere to our guidelines. Our partners join us because of our brand; it gives us profile.” He’s upfront about the fact that, “we put up less investment and bear less risk”, both strategically, and operationally.
However Andrew Hawkins says he prefers to differentiate two kinds of business, strategic and tactical. “There are two elements to our international business,” he says. “First, offices where we want to have a wholly owned operations, that’s strategic, looking to future business as much as to current business volumes. The other is more just looking for turnover, where we will work with partners.”
For instance in St. Tropez, Chesterton works with a partner; that’s an office that does a lot of business with the UK. In the Middle East on the other hand, Chesterton owns its Abu Dhabi office and it has also decided to take 100 per cent ownership of the offices in Australia and Singapore, in the strategically crucial Pacific Rim.
Branding is important, which is the reason that franchising works well in this area. For its international offices, the group has decided to use the Chesterton brand, rather than Chesterton Humberts. “Humberts is very much a UK brand,” Andrew Hawkins says, “whereas Chestertons is a worldwide brand.”
In some countries, local regulations may require the presence of a local partner. For instance in the UAE and in Oman, foreign companies need a local sponsor, although the UAE sponsor for Cluttons is not, in fact, active in the business, Bill Siegle says.
But whether or not a local partner is a regulatory requirement, he says, “You would not go into an area cold. The ideal thing to do is to identify a business or individuals locally that you can tie up with. You get the benefit of their local knowledge and they get the benefit of your international links.” He believes the company’s existing network is the best way to find new partners, for instance, existing partners in the Middle East already know a number of businesses in India which might be suitable. “We don’t go out and headhunt, necessarily,” Siegle says; “We tend to evaluate opportunities that arise, rather than try to create them.”
Once the right partner has been identified, the process of due diligence and contracting can be quite fast. Cluttons, for instance, has signed up some of its partners in less than three months from the initial meeting. It’s helped by the fact that it has a fairly standard format for its licences;
They must be an asset to the Fine & Country brand, established, leaders in their field, with a professional code of conduct, and specialising in the right kind of property. If there’s any prospect that a partnership might have a negative impact on the Fine & Country brand, it’s not worth taking the risk.
The relatively slow growth of most international networks isn’t the result of regulatory issues, or lack of speed getting offices on stream, it’s the result of agents’ caution and unwillingness to run the risk of over-expansion or of opening a business that doesn’t reflect well on the brand. Andrew Hawkins says, “You can make a mistake trying to do too much too soon.” He wants to ensure that current offices are operating well before opening more.
Because agents are opening up in partnership with local agents for the most part and generally employing local agents even when they open wholly owned businesses, local issues are rarely a problem. But none the less, agents need to be careful to ensure they understand the way the local market works. Bill Siegle, for instance, warns that different accounting procedures used in other countries can sometimes conceal ‘black holes’; due diligence needs to be carried out thoroughly. “You’ve got to be prepared to adapt,” he says; “you can’t be too precious about it. You have to operate in their world, not yours.”
Andrew Hawkins also believes that, “As a UK based firm you need to listen to what your partners are telling you.” While it’s possible to expand in the UK market with a rigid attitude to business procedures and policies, expanding into foreign markets requires a rather more pragmatic and flexible attitude.
WHERE SHALL WE GO?
While the trend to expansion abroad is clear, agents are highly selective about which markets they move into. Andrew Hawkins says that for Chesterton, “The core Western European markets are always of interest, as the vast majority of our buyers currently come from Europe. Demand is showing us that these are the destinations we need to be offering.” So Chestertons has offices in Gibraltar, Mallorca, and Italy, as well as Russia.
Hawkins says Chesterton would consider America, but it’s somewhere that “an opportunity hasn’t come our way yet”. He has his eyes fixed on Asia, an area where he believes there will be growth.
Fine & Country’s expansion strategy has been driven by turnover, for instance by UK demand for Spanish and Middle East properties (Fine & Country is expecting to increase its presence in Spain in the immediate future). Mike Bidwell says “We’ve tended to grow into areas which have a natural synergy with the UK.”
However he is also interested in markets like the Far East, where there’s currently less UK investment but which in the long term will see higher growth. Closer to home, he likes the look of Spain, Russia, and the Czech Republic, as well as India – “fascinating markets with some absolutely phenomenal quality property.”
His question before investing in a new market is whether the market is large enough to enable the agency to make a living and pay a reasonable licence fee to Fine & Country. That means some smaller markets might not qualify. But he says “The beauty of the internet is that it’s easy to measure whether there is a market there in the first place, before we get on the plane.”
It’s not always a simple decision. For instance although France is a major market for British buyers of overseas property, Fine & Country has not got involved so far. Bidwell says that’s because he feels it is simply too large a market to manage on an office-by-office basis. “We have spoken to agencies in specific locations,” he says, “but we would be more comfortable finding a French realtor that had the ability to take on the master licence. We really, really don’t want to get it wrong – our brand is built on our strong reputation.”
The common feature of almost all agents who are expanding abroad, as opposed to simply selling overseas property into the UK, is that they’re concentrating on high end properties over EUR 1m in value. For instance according to Mike Bidwell, Fine & Country concentrates on the top quarter of the market, with a EUR 2-3m valuation typical. Partners, obviously, need to be comfortable dealing with this quality of property. Bill Siegle, too, says “Our involvement has generally been only at the top end of the market, with prestige properties.”
Many agents started their international diversification by concentrating on developments. Winkworth International Developments represents developers in Morocco, Egypt, Mauritius, Mexico and the Caribbean, as well as other markets, specialising in new build and off-plan sales. Mike Bidwell says Fine & Country is frequently approached by developers and by giving the agent a large slug of new business, developers can make a big difference to the economics of starting up.
But this changes as networks mature. Andrew Hawkins says Chestertons used to get 80 to 90 per cent of its international business from new developments. Now, it’s 40 per cent, as the proportion of individual resales has risen, directly attributable to the growth of the network. Network growth is being measured in terms of the underlying business, rather than the number of offices.
While the model for residential agency in the UK has until very recently been driven by numbers of branches, the same doesn’t seem to apply to any of the international operators.
Mike Bidwell says, “We want to take the brand worldwide but we’re not driven by numbers – we’re driven by quality.” That might have something to do with the economic environment, but it’s clear that market leadership and quality of service are extremely important criteria for him.
For Bill Siegle, the big target isn’t the number of offices but the amount of business sourced from them. He says “We aim to source at least 50 per cent of our business abroad for both commercial and residential; we’re not hitting that at the moment, we’re about 25 to 30 per cent.”
The long term plan is get coverage in India, the Far East and Pacific Rim within the next five years or so. America, both North and South, is also attractive, Siegle says, but might be a longer term move.
As international networks grow, they are likely not just to increase in size, but actually change their nature. There will undoubtedly be more cross-selling between branches, with business flowing in both directions – foreign property into the UK, and UK property to foreign buyers. Bill Siegle notes that there’s a lot of private wealth in the Far East ready to invest in UK residential property; some developers are already promoting their properties in Hong Kong and Singapore.
Chestertons too is seeing an increase in the number of international buyers for international property as its network expands, the dynamics of the business will change as the network grows, according to Andrew Hawkins.
Local branches also need to serve the local market and are not just feeder businesses for the UK. Mike Bidwell says that, “In Spain for instance, we would need to engage with the Spanish market, not just Brits buying in Spain. Demand from Brits is just skimming the surface of the market.”
In some cases, international expansion may even change the nature of the parent firm. Bill Siegle says of Cluttons, “We are based in the UK and run our operations from the UK. But we will move towards being a global business. While we currently work with partners, over the next five years I would look to move to having a proprietary position in our international businesses.” That might mean that in ten years’ time, it will be the British who dominate the global market, at least in high-end residential property – if they don’t, it won’t be for want of trying.