Savills profits plunge after commercial property woes

Savills boss claims that the commercial property market has suffered more in the last year than even during the global economic crisis.

In 2023, the property agent’s profit collapsed as he was no longer able to find work. Investors chose to stay put as borrowing costs rose and property values dropped sharply.

Mark Ridley is the CEO of Savills. He said, “I have been in this business for 40 years, and I can say that [2023] has been the most difficult transactional year I’ve ever experienced.” “Globally transaction volumes were down by 44 percent. This is worse than the worst of the global economic crisis and the recession in the early Nineties. “So pretty bad.”

Many people think of Savills as a traditional estate agency. However, this only accounts for a tenth its business. Agents also find office space for businesses, and arrange deals for investors. Most of its fees are generated by its “less-transactional” divisions such as property management, investment management and consultancy.

In 2023, the company’s revenue will fall only 3% to £2,24 billion from £2.3 billion last year. The pre-tax profit fell to £55.4m, down 64 per cent from £153.9m the year before. The final dividend to be paid out on May 23 was increased to 13.9p, but this means that shareholders will only receive 22.8p as dividends in 2023. This is a 33% decrease from 2022.

Savills’ lower-margin transactions, which typically deliver the majority of profits, struggled to maintain profitability. The group’s transactional consulting division saw its profits fall by 94 percent to £4.3million.

Ridley, who is 61 years old, stated that activity was muted in the past year due to the grim economic outlook, wars, elections, and the rapid rise of borrowing costs which impacted the budgets for would-be purchasers.

There were still some positives. The “prime end” of the London residential property market “was more resilient”, as the super-rich continued to spend lavishly, even though they did not need mortgages. The profits from the division of property and facilities management, which was not affected by the market downturn, grew by 5 percent to £48.8 millions.

Ridley said that he expects to see his agents busier in 2024. He also noted “green shoots” during the first weeks of 2024. This, he hopes, will “set the stage for a wider recovery throughout the second half of this year and well into 2025”.

This optimism was reflected in Savills share price which rose 39 1/2p or 4.2 percent to 979 1/2p. It is about a fifth more than what it was at the beginning of December.

Savills, rather than lay off a large number of employees as other companies have done, only did a “very little amount of pruning” in order to prepare for the time when the market will recover.

Ridley stated that Britain is attracting investors due to the rapidity at which the commercial property market in the UK reset its prices last year. While valuations are still dropping in some countries, there is a feeling amongst the industry that the prices in the UK already reached their bottom. He said that buyers from the Middle East and Europe, as well as Japan, were “all actively engaged in the UK”.

Savills predicts that commercial property debt of $900 billion will mature in this year. Some landlords may be able pay the additional costs, but others will need to sell, which will create more work for their agents.

Ridley stated that “some of the [debt] would be refinanced. But I think there would also be opportunities to purchase assets at a lower price.” In our auctions, which are usually a good indicator of the future, we have seen an increase in sales volume.