Savills plc, the international real estate advisor, publishes the following trading update in respect of the year ended 31 December 2020.
Against the backdrop of the COVID-19 pandemic, the Group has delivered a resilient full year performance reflecting both the robustness and geographic diversity of our business and the mitigating actions taken by staff across the globe. Thanks largely to excellent performances in the UK, Asia Pacific and Savills Investment Management, reflecting the strength of our less transactional service lines, the Group anticipates that underlying results for the year to 31 December 2020 will be at the upper end of the Board’s expectations.
Covid-19 impact and response
Savills has shown considerable resilience in a year in which the Group faced significant challenges, particularly to our transactional advisory businesses worldwide. The cycle of lockdowns and other measures, such as travel restrictions, from Q1 2020 had a significant global impact on the ability and preparedness of both investors and occupiers of real estate to transact. As a consequence, in major markets, both investment and leasing volumes contracted significantly compared with 2019 and previous periods.
As announced previously, the Group was quick to adopt a number of operational and financial initiatives to minimise the impact on the business as a whole. Savills strategy was to minimise discretionary expenditure while maintaining our staffing levels to ensure seamless service to clients around the Globe. In addition the Board suspended distributions to shareholders pending greater visibility of future market recovery. The consequence, particularly of retaining our staff, has been improved market share in most of our markets. This both partially mitigated the impact of volume declines in transactional markets and improved our win ratio of tenders for less transactional real estate services such as consultancy and property management. Additional cash management activities, including taking the opportunity in H1, at no cost, to defer certain predominantly VAT/sales tax payments of c. £50m, ensured that the Group remained in a robust financial position through the period and finished the year with net cash in excess of £160m (2019: £28.5m).
Performance by region
Despite the backdrop of restrictions and uncertainty, the UK performed well across all business lines with notably strong performances from our Consultancy and Property Management businesses. Commercial transaction activities, particularly leasing, were significantly affected by the pandemic. Our Commercial investment activities benefited from our involvement in some of the largest transactions seen in the UK and more generally from an increase in activity, albeit still substantially below 2019 levels, which began to occur in Q4. Our UK prime residential business, which effectively missed the spring selling season during the first lockdown, showed an extraordinary rebound in activity from the end of May, predominantly in the regional markets outside London where the volume of activity in prime residential markets for the year as a whole was the strongest since before the global financial crisis.
Our Asia Pacific business as a whole performed ahead of our original expectations as markets such as Mainland China recovered more quickly from the original lockdowns and residential sales activity remained strong through the period. Commercial investment volumes were saignificantly reduced, however we partially mitigated the impact with market share gains in China including Hong Kong. We also benefited from a strong performance by our substantial Property and Facilities Management business in the region. Korea, Vietnam and Japan also performed well during the period and by the end of the year there was a discernible improvement in sentiment in both Australia and Singapore.
Europe & the Middle East
In Continental Europe and the Middle East, where our business is much more dependent upon transactional activity, Savills performed broadly in line with expectations in the context of a decline in the transaction volumes in some of the major markets. Those countries where we provide the broadest range of services such as the Middle East, Germany, the Netherlands and Spain showed relative resilience to declines in transactional activity.
In North America, where Savills is largely focused on commercial occupier leasing transactions, the pandemic, had a significant effect on our business, with market leasing volumes declining by c. 40% year-on-year and more (c.50%-70%) in the largest metro markets of New York, San Francisco, Chicago and Los Angeles. Against that backdrop, market share gains and our ability to close some individually significant transactions partially mitigated the market-related decline in our leasing revenues.
Savills Investment Management performed ahead of our expectations with both new fund launches and strong investment performance from the majority of our products. Our strategy was to adopt a cautious approach to the deployment of capital in markets where, for much of the period, there was limited price transparency. Accordingly, whilst base management fees remained highly resilient the business experienced better than anticipated, albeit substantially reduced year-on-year, performance and transaction fees during the period.
Looking to the year ahead, with renewed lockdowns and substantial increases in infection rates in most markets, it is too early to predict the direction of market activity in the short term. That said, global investor demand for secure income, restricted supply and expectations of continued low interest rates suggest that the medium and long term attraction of real estate as an asset class remains highly positive. The pace and efficacy of mass vaccination programmes and consequent reductions in lockdown and travel restrictions will dictate the rate at which transactional markets recover from here to reflect underlying demand. With the operating environment currently restricted in most markets, the Board considers it inappropriate to resume guidance at this stage. However, in general terms, we expect transactional activity to remain suppressed in the first half of 2021 with improvement commencing in some individual markets in the second quarter followed by progressive recovery through the second half of the year.
Savills is a resilient, globally diversified business with a strong balance sheet and the Group is well positioned to continue to execute its growth strategies and further enhance its market position.
Savills intends to report 2020 full year results on 11 March 2021.