Saturation Matters
This is a really touchy subject among managing agents but here me out…
I get asked A LOT about HMO saturation.
Which parts of the country do I feel where there are too many HMOs and therefore potential for saturation.
This can lead to reducing rents, higher void periods or lower tenant quality.
In my role, I obviously see the harsh end of this daily as these factors often lead to valuation and sales requests.
I see many of the HMO problems that occur nationally and people keep quiet about.
So what do I think is the main drive behind saturation?
The obvious point to make is around article 4.
If it’s not present in an area then, of course, there will be a conveyor belt of HMOs coming of the PD processor.
The implementation of article 4 can also do little to stem the saturation issue of it comes in too late or the councils are still accepting Sui Gen applications.
But let’s not just blame article 4 for all of our problems.
We need to talk about managing agents.
They are the single biggest issue for saturation and completion issues within an HMO micro-climate.
What did I just say?
They are the single biggest issue for saturation and completion issues within an HMO micro-climate.
Let me explain…
Imagine you own a 6-bed studio style HMO in a non-article 4 area.
You developed it in 2022 and you chose a hungry, growing, Director-led managing agent to represent you.
10% no vat was a big factor in choosing them but so was their accessibility, the Sunday viewings, the feel good and the energy.
Word got round.
The agent, the brilliant agent, went from 30 rooms, ro 50 rooms, to 100 rooms and now they’re at 350 rooms in YOUR PATCH.
They have 10 studio rooms that are exactly the same as yours available across their books at any one time.
That’s saturation and competition.
How do you ensure that your room is prioritised?
If an enquiry comes in on a Sunday, and now the directors have handed roles out to 9-5 office staff, who responds?
From experience, it’s the local landlords who can turn up to the office and kick up a fuss who get their rooms filled first.
The agent earns the same commission (by the way, in 2024 it’s now 14% + vat) for filling THEIR room as they do filling yours!
It’s the remote landlords or the more passive who feel the BITE of saturation before anyone else.
Saturation and competition doesn’t mean every HMO stops working – it’s a survival of the fittest.
It’s got nothing to do with the quality of your room, the issues are being created by the competition within your exponentially bulging managing agent.
The people who moan about saturation first fit into this category. Let’s not just blame article 4.
There needs to be a culture of reviewing managing agent performances – if you feel they’ve grown too fast then you’re probably 6 months away from moaning about HMO saturation.
The good news is that there is always the next young, hungry, Director landlord-led specialist agency popping up in your area.
It’s your job to ride these waves and be prepared to move agency when the tipping point is close.
If you have 2 studio rooms advertised on SpareRoom side by side, one listed by the agent with 350 rooms and one listed by the agent with 50 rooms which agent is more likely to fill your HMO?
The larger agent will have multiple vacancies and will be doing a viewing tour to guarantee they bag the motivated tenant – your property is now in a game of chance with 5 other landlords.
The smaller agent only has your HMO and room – your property is their sole focus.
Not all agents that grow too quickly have this issue, of course, but we need to look at more than just article 4 when we’re discusssing saturation and competition.
Those that build a portfolio, grow with the agent, and then get to the point where they can bring the management in-house…
Well, I’ve never had one of them express concerns over saturation.
