Throughout the year, real estate markets across the globe have been challenged by significantly increased interest rates, geopolitical events and, on a more asset specific level, uncertainties over the future role of offices and the valuation of existing stock in the era of sustainability.

These factors together with certain location-specific issues significantly reduced transactional activity in Global markets during the year. Those most affecting Group performance were: North America, Greater China, Australia and Northern Europe, particularly the largest markets of Germany and France. In addition, economic uncertainty led to delays in corporate occupier commitments to new leasing activity, particularly in the metropolitan office markets of the USA and Northern Europe.

The value recalibration process has yet to catalyse market liquidity, with the majority of lending banks continuing to extend existing loan terms, albeit we are now starting to see lenders beginning to exercise their security rights. This began to have a positive effect on market activity towards the year end and should be a catalyst for improved volumes in H1 2024.

The consequence of this was that global market conditions remained extremely subdued for longer than originally anticipated at the start of 2023, and resulted in the Group’s Transactional businesses experiencing a significant reduction in profits for the year.

Savills strength across our Less Transactional service lines continued to provide a resilient earnings stream, with the Group’s Consultancy and Property Management businesses performing well, underpinning Savills overall performance. Consequently, the Group expects that its full year performance for 2023 will be in line with the expected range of outcomes*.

The speed with which individual investment markets are recalibrating varies around the Globe; however, it is clear that the UK prime Commercial market has re-priced to a point where it represents value, particularly for assets with strong sustainability credentials, for which there is significant occupier demand. In addition our Prime residential business has performed well, particularly in central London. As anticipated a year ago, residential markets outside London were more subdued as volumes reverted to more normal levels of activity after the abnormal conditions during and post-pandemic. Indeed our UK business overall delivered a very strong performance in difficult market conditions.

Our European and North American businesses, being the most exposed to Transactional service lines, felt the greatest impact of prolonged uncertain market conditions, resulting in trading losses for the year. In contrast the strength and diversity of our Asia Pacific business enabled the Group to withstand significant reductions in activity, particularly in both Australia and Greater China, to post a profit, albeit reduced year on year.

Our Investment Management business traded in line with our expectations although deployment of capital was inevitably reduced given lack of price transparency in most markets. At the year end, Savills Investment Management had significant investment “dry powder” for both real estate equity and debt opportunities, including Samsung having committed its first $1bn to support a number of fund products.

As a result of prevailing market conditions during 2023, the real estate services industry as a whole undertook a number of rounds of significant cost reduction and reorganisation actions. In line with our strategy during the Global Financial Crisis, as well as more recently through the pandemic and supported by our strong financial position, Savills continued to maintain its core bench strength ensuring that we provided the highest level of service to our clients throughout the year and remain well positioned for market recovery. We did, however, review certain markets and sectors where the anticipated time frames for market recovery remain protracted. This resulted in selective restructuring in certain transactional and support teams. Alongside this, we continued to acquire businesses and recruit high quality talent in markets which have become much more conducive to reasonably-priced business development.

In the year ahead, challenging macro conditions are expected to continue for some time; however most markets appear to be either at, or past, the moment of peak uncertainty, with sentiment turning towards reductions in the cost of capital being likely during 2024. We expect re-financing driven activity and the sustainability agenda to be positive for transaction volumes, and thereby price transparency, in a number of markets. There also remain, for the near term at least, questions over office utilisation in certain locations, perhaps most keenly felt in the North American metropolitan markets of the Eastern and Western seaboards.

Whilst it is too early to determine the 2024 outlook with clarity, we believe that H1 2024 will see underlying market improvements, which should set the course for broader recovery in most of our markets during the second half of the year. This, together with the benefit of our targeted restructuring programme, should lead to substantive overall improvement in performance in 2024 and set the foundation for further improvement thereafter, when the Group’s performance should more clearly reflect our globally diversified and strengthened position in many markets.

Savills intends to report 2023 full year results on 14 March 2024.

*The range of current analyst forecasts (excluding any forecasts which have not been updated within the last 6 months) for 2023 Underlying Profit Before Tax is £85m-£97.1m with an average of £91.3m