125,884 London Businesses Are Now in Significant Financial Distress
· There are 125,844 London businesses in significant financial distress—a 4% increase since the same period in 2018.
· 16 of the 22 sectors analysed are experiencing an increase in distress.
· The real estate and property sector has been badly affected, with a 15% increase in distress levels.
· This distress is experienced across a wide range of sectors including utilities (7% increase), sport and health clubs (7%), industrial (7%), hotels (7%), retailers (6%), construction (4%) and bars and restaurants (4%).
Across the UK, almost half a million businesses are in significant financial distress. The latest Red Flag Alert data for Q4 2019 found that the number of businesses in distress was at a record high at the end of December 2019, with London businesses accounting for over 25% of the overall figure.
22 sectors are monitored, and 16 of them showed an increase in distress between Q4 2018 and Q4 2019. Real estate and property was the hardest-hit sector with an increase of 15%, and very few sectors escaped the increase in distress.
With distress on the rise, we expect the national figures to exceed 500,000 as London-based business distress continues to grow.
Real Estate and Property
Between Q4 2018 and Q4 2019, there has been a 15% increase (Q4 2018: 13,864 to Q4 2019: 15,900) in London-based real estate and property businesses experiencing significant distress.
Mark Halstead, Partner at Red Flag Alert, said: “2019 was a tough year for the London property market—with political uncertainty rife, many businesses struggled. It seems a lot of buyers were waiting until there was some clarity on the future before committing to a purchase or a move. Now that a degree of certainty has been restored since the election, we expect the London housing market to recover.”
Between Q4 2018 and Q4 2019, there has been a 4% increase (Q4 2018: 10,742 to Q4 2019: 11,212) in London-based construction businesses experiencing significant distress.
Mark Halstead said: “In 2019, orders for construction projects fell sharply (especially in commercial property), adding to the general malaise of the sector since the 2016 EU referendum vote. The sector downturn has slowed in January, but those businesses in distress will struggle to reach a safer financial position in a sector notorious for late payments, cancelled projects and overreliance on a small client base.”
Between Q4 2018 and Q4 2019, there has been a 7% increase (Q4 2018: 1140 to Q4 2019: 1125) in London-based hotel businesses experiencing significant distress.
Mark Halstead said: “The hotel industry is an interesting sector. Top-line industry metrics were very positive in 2019, occupancy was strong at 81.4% (one of the best-performing European cities), while key industry metrics like RevPAR (revenue per available room) and GOPPAR (gross profit per room) are both growing. In a market where costs are rising and competition is fierce, there will always be a subset of businesses that struggle to compete—our data clearly shows a growing number of hotels fall into this category.”