17 May 2023
("Savills" or "the Company")
Ahead of its Annual General Meeting (AGM) to be held at 12 noon today at Savills, 33 Margaret Street, London W1G 0JD, Savills plc, the international real estate advisor issues the following trading update:
· As capital values progressively adjust to higher interest rates global capital transaction volumes for the year to date are at the lowest levels seen for a decade; this has clearly impacted the Group's Commercial transaction business in the early part of the year.
· Leasing markets have remained more resilient across most sectors, although office take up is heavily skewed to prime stock with strong sustainability credentials.
· Although volumes are lower than last year, as expected, prime residential markets have performed well with a particular emphasis on the London market.
· Sentiment in China has improved significantly since the end of COVID restrictions, albeit this has yet to show materially in the Group's revenue line.
· Savills less transactional businesses have performed in line with expectations.
· H1 2023 will be materially impacted by the ongoing recalibration of global investment markets; and whilst the range of potential outcomes for the year as a whole has widened since year-end, we continue to expect progressive improvement in the second half of the year as markets start to recover.
Mark Ridley, Group Chief Executive, commented:
"During this period of adjustment, I am delighted with the response of our people both in helping clients facing challenging circumstances and in seeking longer term business development initiatives, which our strong balance sheet enables us to pursue at this opportune time. The strength of our less transactional businesses has helped underpin the Group's performance overall. The anticipated market corrections in 2023 are happening largely as anticipated. As greater certainty over the future pattern of global interest rates is emerging, we expect progressive recovery through the third and fourth quarters of the year and into 2024."
In the Asia Pacific region, Japan and Korea have traded well and sentiment in mainland China has significantly improved since the New Year. Elsewhere, markets are correcting to the prevailing level of interest rates. Our substantial Property and Facilities Management business in the region continues to perform well.
In the UK, our performance has been largely in line with expectations, driven primarily by the good levels of activity in the prime residential markets and some recovery in retail. Other commercial capital markets have been severely impacted as pricing adjusts, however we have enjoyed an unusually high market share in prime transactional markets, which has partially mitigated the significant decline in volumes. Partly because post-Brexit, UK yields did not compress as far as other international markets, we believe that prime real estate valuations have largely corrected and we await improving sentiment into which to launch a very attractive pipeline. Our less transactional service lines have performed in line with our expectations to date.
In Continental Europe and the Middle East, where Savills is highly dependent upon transactional activity, volumes, particularly in the major markets of Germany and France, have been severely reduced during the period. Leasing momentum remains subdued and across capital markets, yields have moved out considerably, and the correction, although not yet complete, is well underway. This has had a significant impact on our business in the year to date.
In North America, where the Group is substantially dependent upon leasing activity by corporate occupiers, our business performance has been in line with our expectations, albeit individual transaction sizes are currently much reduced.
Savills Investment Management has traded in line with our expectations. In an environment which remains challenging for the deployment of equity capital and valuations adjust to prevailing debt costs, our business has experienced the expected impact on both base management and performance fees during the period.
Summary and Outlook
In the year to date, global commercial investment volumes have either reached or approached their lowest levels in many years. As a result, at this early stage, the range of outcomes for the year as a whole has widened, however our prime commercial leasing, residential, consultancy and property management businesses all continue to trade in line with expectations.
Although it is impossible accurately to predict the timing of individual market recoveries, we remain optimistic that markets will start to improve in the second half and we are seeing early signs of this in some areas. Confidence in the ongoing recovery and level of transactional velocity through the latter part of the year will be key to supporting our view that 2024 will show transaction volume growth in most markets. In the meantime, we continue to pursue opportunities to develop our business both through targeted recruitment and selective acquisition.
We anticipate announcing the Group's Half Year Results for the six months to 30 June on 10 August 2023.
For further information, contact:
Savills 020 7409 8934
Mark Ridley, Group Chief Executive Officer
Simon Shaw, Group Chief Financial Officer
Teneo 020 7353 4200