Shares in international property advisory firm Savills saw a significant drop of 10% after reporting a 70% decline in half-year profit. The company attributed this decline to high interest rates negatively impacting commercial property deals. The global property market has been experiencing weak transaction activity since the start of the pandemic, with the office and retail sectors being particularly affected. Additionally, elevated interest rates and tighter credit conditions have further dampened deal appetite.
Savills, which operates in over 70 countries, revealed that transaction volumes in the UK have plummeted by approximately 60% compared to the previous year, and are 46% below the five-year average. The company highlighted that continental Europe, specifically Germany, France, and the Nordic region, has experienced the most significant reductions in activity.
In the six months leading up to the end of June, Savills reported a decline in group underlying profit before tax from £59.2m to £16.3m. Mark Ridley, the chief executive of Savills, acknowledged that market participants, whether investors or occupiers, are seeking greater certainty regarding the trajectory of interest rates over the next 18 months. He noted that this clarity has become somewhat clearer in recent weeks, compared to the earlier period.
Given the uncertain market conditions, Savills stated that its expectations for the year as a whole have “reduced somewhat.” The company’s largest transaction advisory business experienced a 20% decrease in revenue. Savills also highlighted that China has been slow to recover since the lifting of pandemic restrictions. Mr. Ridley explained that the high availability of office spaces, in particular, has led to a longer-than-expected recovery delay in the Chinese market.
In conclusion, Savills’ half-year profit slump and the decline in transaction volumes reflect the ongoing challenges faced by the global property market. The impact of high interest rates, weakened deal appetite, and uncertain market conditions have significantly affected the company’s performance. The recovery in China has also been slower than anticipated, primarily due to the surplus of available office spaces. These factors have contributed to Savills’ reduced expectations for the year ahead.