Savills profits plummet as rising interest rates hit property market

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A hoped-for rebound in China’s property market has been “somewhat slower” than expected, real estate adviser Savills has said, as parts of the global market struggle to regain momentum after a slump caused by higher borrowing costs.

In half-year results on Thursday, the FTSE 250 group reported pre-tax profits of £6mn for the period, down from £50mn in the first half of 2022. This was led by a slide in turnover at its transaction advisory business, which includes commercial and residential property deals, with revenue down by a fifth overall. 

Group chief executive Mark Ridley told the Financial Times the sector was “always going to have this moment”, when the period of low interest rates came to an end, knocking asset prices and testing investor confidence.

“It’s now upon us, and markets are recalibrating at different speeds,” he said. London and the wider UK market are recovering “quite quickly”, he added, but China’s recovery had been “slower than we hoped”.

All regions had suffered a “material decline in trading volumes” as they adjusted to a rise in borrowing costs, the group said in the earnings statement, as investors “seek greater certainty on the trajectory of interest rates over the next 18 months, something which has become somewhat clearer in recent weeks than for much of the period”.

Shares in the FTSE 250 company were down 9 per cent by late morning trading in London.

The UK-based property group is the latest to report sliding earnings on the back of rising global interest rates, which have led to a drop in real estate deals.

Savills said it was seeing continued strength in Japan and good signals in the UK, but that in China and continental Europe reduced market volumes were now expected through much of the rest of the year.

In its mainland China commercial business, the group said it had anticipated “good signs of recovery once Covid restrictions were lifted” at the start of this year. “This has proved somewhat slower as a result of economic uncertainty,” it added.

Analysts at Numis reduced its full-year pre-tax profits estimate for Savills on the back of the cloudier outlook, trimming its estimate by 11 per cent. They made a “more modest cut” of 9 per cent to its 2024 forecast, based on an expectation that volumes will improve next year.

“Forecasting the timing and extent of the ultimate market recovery remains challenging. However, property markets are repricing quickly,” they said.

Savills said it had increased market share in the period, and anticipated a “significant improvement in volumes of activity through the balance of the year, and into 2024”.

Management said the results showed progress in a strategy to build out other divisions less focused on transactions: consultancy, where revenue was flat year on year, and property management, where turnover rose 14 per cent at constant currencies to £436mn, now the biggest segment. Recent acquisitions in Singapore and Australia have bolstered the latter unit.

Elsewhere, Persimmon, the FTSE 100 housebuilder, said pre-tax profit had fallen to £151mn in the first half, from £440mn in the previous comparable period, as the number of new homes it completed fell. That reflected a drop in orders amid the market turmoil caused by last year’s ill-fated “mini” Budget.

But the builder said its private order book had grown since January, and the numbers were enough to drive its shares 2 per cent higher by late morning in London.