London-based real estate advisor Savills reported a 72% drop in H1 2023 pre-tax profit to £16.3 mln (€18.8 mln), from £59.2 mln (€68,4 mln) a year earlier, while revenue fell 2.5% to £1.01 bn (€1.17 bn).
Trading volumes dropped as real estate markets progressively adjust to challenging macroeconomic conditions.
Savills said that the profit drop reflects the anticipated losses in the transaction business, staff cost inflation, and the maintenance of the professional staff roster to service clients and benefit from the recovery in due course.
The downward trend in real estate trading volumes, both capital and leasing transactions, experienced in H2 2021, continued as investors and occupiers reacted primarily to the significant increase in debt costs.
In the UK, capital transactions dropped in volume by around 60% year-on-year and 46% below the five-year average, with leasing activity largely focused on grade A stock.
Continental Europe saw the most significant reductions in activity, particularly in Germany, France, and the Nordic region.
The prime residential markets, particularly in the UK, remained relatively buoyant, in contrast to mainstream or residential new build markets which are more highly dependent on mortgage finance.
UK commercial transaction revenues dropped 33% to £37.5 mln (€43.4 mln), as market volumes declined 54% year-on-year and 38% below the five-year average. The UK remained the most attractive location for overseas investment during the period, while office leasing volumes in both central London and the key regional cities dropped by 23% year-on-year. Logistics leasing markets performed relatively better with an improvement in retail transactions during the period.
Revenue from Savills UK residential business declined by 25% to £71.6 mln (€82.1 mln), however this was Savills' third strongest revenue performance in a decade and 25% ahead of the comparable pre-Covid period. In the second hand agency business, overall transaction volumes exchanged were down 24%, while revenue from the sale of new homes declined 28%. Revenue from the Operational Capital Markets business, which advises on the private rented sector, student and other institutional residential markets, saw a 26% decline in revenue.
In Europe and the Middle East, transactional advisory revenue declined by 12% to £43.2 mln (€50 mln), while leasing revenues were flat, partially mitigating a 21% decline in capital transaction revenues. Capital transaction fell 59% for the market as a whole, with office and industrial sectors dropping by 64% and 65%, respectively. Cross border transactions into Europe were at the lowest levels seen in over a decade. Revenue declined significantly in the key Northern European markets of Germany, France, Sweden, Ireland, and the Netherlands, partially offset by resilient performances in Spain, Poland, and Italy.
Savills CEO Mark Ridley said: "Savills has weathered both the inflationary cost conditions and reduced transaction volumes well, increasing market share and, supported by our strong balance sheet, continuing to undertake selective business development activities to further the group's long-term growth strategy."
Savills also announced that Stacey Cartwright will succeed Nicholas Ferguson as chair from 31 December. Cartwright was previously CEO and deputy chair of Harvey Nichols, executive president and CFO of Burberry, and CFO of internet bank Egg. Cartwright has served as Savills' independent nonexecutive director since October 2018 and senior independent director since January 2021.
