7,000 London Companies Sink Into Significant Financial Distress in the Last 12 Months

• 124,000 businesses in Greater London are experiencing significant financial distress in Q3 2019.
• The number of companies in Greater London that are experiencing significant financial distress has increased by 7,163 since Q3 2018.
• 21 out of 22 different sectors across Greater London have seen an increase in the number of companies in significant financial distress.

Red Flag Alert data for Q3 2019 found that significant financial distress is increasingly prevalent throughout the capital, with 21 out of 22 sectors experiencing an increase with 484,000 Businesses in Significant Distress across the UK.

Mark Halstead, Partner at Red Flag Alert, said:

“We already know that the uncertainty that followed the 2016 EU referendum has taken its toll on UK businesses. These figures show that Greater London is not immune to these effects; all sectors in the capital have seen an increase in the number of companies in significant financial distress.”

Hotels and Accommodation

London hotel and accommodation businesses have seen a 10% increase in significant financial distress. Brexit uncertainty, combined with a slowdown in global economic growth and an oversupply of rooms, has created this increase.

The oversupply could be due to the number of privately owned properties in the capital being used for short-term rents. Recent research has shown that there is one Airbnb for every two hotel rooms in London.

Industrial Transportation and Logistics 

Since Q3 2018, 11% more industrial transport and logistics companies in London are in significant financial distress.

This sector’s troubles are closely linked with Brexit; the decline in the number of EU migrants has created workforce issues, while uncertainty has curtailed investment and reduced profit margins.

Real Estate and Property 

Real estate and property in London has been hit hard by uncertainty, with 2,307 more companies experiencing significant financial distress since Q3 2018 – a huge increase of 18%.

This has been caused by a slowdown in the market. With many buyers choosing to defer until after Brexit, the average house price in central London has fallen by 15.2%, putting more negotiating power into the hands of buyers.

Construction

A ‘wait-and-see’ approach to commissioning new projects due to Brexit has seen a drop in demand for new construction projects across the UK.

The London sector has fared slightly better than the rest of the country, but it has still seen an additional 771 companies in significant financial distress since Q3 2018 – an increase of 7%.

Critical Financial Distress

Several sectors in London show an increase in companies entering critical financial distress, often a precursor to a business becoming insolvent. These include:

• 41% increase in the number of bars and restaurants in critical distress – we have written before on the challenges facing UK restaurant chains.
• 86% increase in the number of food and drug retailers classified as being in critical distress. September has been a particularly bad month for supermarkets due to Brexit uncertainty, with a 1.3% drop in sales compared to last year.
• 62% increase in critical distress for businesses in education and healthcare. Nearly one in four English universities are in deficit, and new private education providers are struggling to get a foothold.
• 75% increase in hotels and accommodation experiencing critical distress.

Many businesses are unable to withstand the issues described above and are being pushed to the brink of insolvency.

Mark Halstead, Partner at Red Flag Alert, said:

"Despite the capital’s high growth rates over the last decade, these figures clearly show that London is now in the grip of Brexit uncertainty. An additional 7,000 companies have sunk into significant financial distress in the last year alone. 

Low consumer confidence, an inflated property market and an expensive operating environment are all taking their toll on businesses across all sectors. The impact of this is now beginning to be felt more widely.”

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