London is a blot on Savills’ outlook

Mar 13 2008 by Our Correspondent, Western Mail

HIGH-END property group Savills yesterday said 2008 prospects hinged on how soon financial markets recovered from the credit crunch.

Despite a 14% rise in underlying profits to £85.5m last year, the company said uncertainty over City bonuses had driven a 2% fall in prices for prime central London properties in the final three months of 2007.

Savills is now expecting low property turnover and flat house price growth in 2008 following the credit crunch, which has also hit prices in the commercial property sector.

Chairman Peter Smith said, “The outlook for our UK and US commercial businesses and our UK residential and mortgage broking businesses continues to depend on how quickly confidence returns to financial markets.”

Although question marks still hang over US and UK markets, Savills said it benefited from a wider geographical spread as its Asian and European businesses proved more resilient. Shares in the group rose more than 4%.

Around 5,000 eligible staff at the group shared a bonus pot which increased 20% to £152m.

Incoming chief executive Jeremy Helsby said Savills’ strong financial position and cost controls left it “well placed” to take advantage of possible opportunities thrown up by the credit crunch through either acquisitions or lower commercial property prices.

But the economic uncertainty also means the pace of growth at its UK residential arm – which accounts for around 20% of revenues – will slow this year.

Savills said 2008 would be “challenging” for the property sector but said demand for office space in the UK regions remained stable, despite a subdued London market.

The company said, “Once the credit squeeze has begun to ease, we expect a gradual pick up in the volume of capital market transactions across the UK commercial property market, with investors continuing to focus on opportunities that offer the prospect of above average rental growth.”