Savills has predicted that the commercial property market will recover next year due to a lack of development supply, a move towards sustainable buildings and the reopening of activity supporting the Chinese economy, even as working habits have been shaken by the pandemic.
European commercial real estate activity slowed in the final quarter of last year and higher borrowing costs led to a 60 percent drop in sales volume for the high-end property group.
However, Savills chief executive Mark Ridley said “2024 should see more positive conditions for real estate market activity and Savills maintains its bench strength and invests in advance for such a recovery.”
“Where investors are starting to understand [interest rates] could be a peak and what that will do to debt rates”, he said, adding that there is “plenty of dry powder” ready to go back into the market. Prime property is particularly strong with London in terms of international cross-border interest, although he noted that ” At this stage, forecasts for the full year are characterized by a wide range of possible outcomes”.
Overall the UK-based group reported a 7 per cent rise in revenue for last year to £2.3bn.
Underlying pre-tax profit fell by almost a fifth to £164.6mn as rising inflation pushed up staff pay levels and discretionary spending such as travel and entertainment also increased as markets recovered after the lockdown. Operating profit fell 16 per cent to £158.2mn, undershooting analysts’ forecasts of £181mn.
Ridley pointed to renewed appetite across China after Beijing relaxed its zero-covid policies and Hong Kong also eased restrictions, saying investors were “vibrant and ready to go”.
Office occupiers were also taking advantage of the market recovery and moving into better quality premises, he said, adding that “a lot of upgrading is happening across China”. This was repeated in the US where leasing volume increased, with nearly three-quarters of space being high quality.
However, Ridley warned that the US is also proving to be the slowest market when it comes to workers returning to the office. A recent report from commercial property advisor Cushman & Wakefield found that hybrid working will push US office vacancies 55 percent from their pre-pandemic levels to 1.1 billion square feet by 2030.
An increase in Savills’ consultancy services and property management activity boosted its revenue, which rose 4 per cent and 13 per cent respectively.
“Although not immune to market volatility . . . these businesses performed well and their strength helped underpin Savills’ performance overall,” the company said.
Shares in Savills were down 4 percent in early trading.