Savills posts strong year-end results despite challenging global real estate markets

Savills posts strong year-end results despite challenging global real estate markets

• Consultancy and property management drive the firm’s performance in difficult market
• Rising debt costs and inflationary pressures impact Savills’ transactional businesses
• Sustainability drives robust activity in Grade A office market for the firm

(PRESS RELEASE) LONDON, 12-Jan-2023 — /EuropaWire/ — Savills (LON: SVS), one of the world’s leading property advisors, has announced the release of its year-end trading statement, revealing that despite challenging global real estate markets, the company’s performance for the year was ahead of expectations and substantially ahead of the pre-COVID period in 2019. The company’s consultancy and property management businesses performed well and helped to support overall performance, however, the transactional businesses faced challenges due to rising debt costs and inflationary pressures, which reduced the volume of leasing transactions. Despite these challenges, activity in the Grade A office market, driven by a focus on sustainability, remained robust in some markets.

The speed with which investment markets are recalibrating to the current cost of capital varies around the Globe; however, we anticipate the challenges to commercial transaction volumes will remain significant through at least the first half of 2023. Other markets such as Central and Eastern Europe (including Germany) have also been affected to a significant extent by the economic impact of the war in Ukraine. In the Asia Pacific region, until very recently, activity within and to /from Greater China also remained severely hampered by COVID-related restrictions.

One highlight in the year has been the relative strength of the prime residential market, which undoubtedly continued stronger for longer than we originally anticipated and helped mitigate the effect of volume declines in commercial transaction activity. We anticipate that the abnormally high UK transaction volumes of the “post-lockdown” market will reverse in 2023 as the market normalises to the prevailing economic environment. This is likely to be particularly notable in markets outside London. The international nature of the Prime London market, lower dependence upon mortgage financing relative to the wider markets and attractive valuations in a global context, should partially mitigate the effect of volume reductions in the residential market overall.

The Investment Management business traded in line with our expectations although deployment of capital was inevitably reduced given the uncertain market conditions and valuation adjustments have reduced performance fee income year-on-year. The majority of the effect of quarterly portfolio valuation adjustments is, however, likely to be felt in 2023, particularly on base management fees which represent the overwhelming majority of revenue in this business.

Discretionary costs (travel, entertainment and marketing events), which reduced significantly during the pandemic, have increased overall in line with our expectations as marketing activity and travel resumed post-pandemic. Meanwhile employment costs have increased as anticipated.

In the year ahead, challenging macro conditions are expected to continue with inflation and interest rates remaining in focus for some time. As a result, the speed at which individual investment markets recalibrate to the current/anticipated cost of debt is unclear although we expect portfolio valuations to continue to mark to market through at least the first and second quarters of 2023. On the positive side, certain markets, such as the UK, are recalibrating faster than in the past, and will be helped by the lack of development supply and an overall trend to sustainability. We would also expect that the release of COVID restrictions in Greater China will pave the way for progressive improvement in real estate markets in the region.

It follows that, at this stage, predictions for the full year are characterised by a wide range of possible outcomes; we believe that H1 2023 will be more challenging than its 2022 comparative; however, we expect progressive improvement through the second half of the year.

Savills intends to report 2022 full year results on 16 March 2023.

Media contacts:

Mark Ridley
Group & Global Chief Executive Officer, Central Management
+44 (0) 20 7499 8644

Simon Shaw
Chief Financial Officer, Plc Central Management
+44 (0) 20 3107 5420

SOURCE: Savills