The property boss who can see the light at the end of the tunnel

The airy offices of Knight Frank chairman Nick Thomlinson are as good a place as any to survey the wreckage of the property market over the last two years. So it can only be good news that the head of the UK&rsquo;s largest privately-owned property business shows no sign of panic as he holds court on the sixth floor of the Baker Street building his firm moved into last June.<br /><br />The upmarket property agency spent around &pound;6m to refurbish part of Marks &amp; Spencer&rsquo;s old headquarters, and the sprightly 56-year-old chartered surveyor seems pleased with the results. A silver-haired Thomlinson says: &ldquo;We wanted to get a cross between a management consultancy and an advertising agency.&rdquo;<br /><br /><strong>CITY OFFICE PRICES DOWN 30 PER CENT<br /></strong>He seems to have got his wish. The modern, stylish offices &ndash; which hold 750 &ndash; have a relaxed feel and are full of beautiful people sauntering down its wide corridors.<br /><br />However, there is nothing beautiful about the global property market that in the UK has seen residential prices plummet around 20 per cent since their peak in the summer of 2007.&nbsp; City office rents have fallen 30 per cent.<br /><br />As Thomlinson says: &ldquo;Commercial buildings are being erected without tenants lined up and oversupply could push down rents even further.&rdquo; <br /><br />This came on the back of house prices and commercial rents that rose steadily for a decade, and helped fuel a horrendous bubble in the economy. <br /><br />Thomlinson adds: &ldquo;The last two years have not been what I would call a normal market. There was over-exuberance, prices were pushed up and properties became overvalued as a result.&rdquo;<br /><br />He continues: &ldquo;Forget the last two years. It was great fun, but we won&rsquo;t see those prices back again for a while. But today&rsquo;s market is clearly not normal either. A normal market is where prices are steady.&rdquo;<br /><br /><strong>A DOWNTURN IN PROFITS<br /></strong>The downturn has taken its toll on Knight Frank&rsquo;s earnings. Last December it said its profits for the year to April 2008 were down seven per cent to &pound;59.2m, from the year before. This meant the group&rsquo;s 46 partners &ndash; a number which has subsequently grown to 65 due to restructuring in its European network &ndash; took home an average of &pound;780,000, 29 per cent less than a year ago. <br /><br />It was not all bad: the firm had &pound;53m of cash in the bank last year. Obviously, all of these figures are a little out of date; Knight Frank results for the year to April 2009 are not due for release for at least two months. <br /><br />But Thomlinson says: &ldquo;We made a profit, but it is down by a double-digit margin. We have no debt. And we still have cash in the bank.&rdquo; The partnership has just under 200 offices in 38 countries &ndash; with 63 in the UK. Thomlinson says that of its overseas operations Ireland and Spain, which have built the booms in their economies on house prices, have had a &ldquo;torrid year.&rdquo; However, he says its Russian, Czech and Indian markets have performed well.<br /><br /><strong>THE LONDON PROPERTY MARKET<br /></strong>Closer to home, Knight Frank&rsquo;s key London residential market is made up of three strands. Its core &pound;400,000 to &pound;1.5m, a mid market ranging from &pound;1.5m to &pound;6m, and what it calls the super prime market from &pound;6m upwards. <br /><br />Thomlinson says the super rich were unaffected by the downturn until the fall of Lehman Brothers last autumn. He says: &ldquo;The super prime market was still going hell for leather until September 2008, then it hit a juddering halt.&rdquo;&nbsp; <br /><br />But he points out the other two markets had begun slowing down from the summer of 2007. He explains: &ldquo;Our core market &ndash; &pound;400,000 to &pound;1.5m &ndash; is largely made up of second or third time UK buyers. But there is less of a buffer against the downturn at this level. There is more job insecurity. This market has been hit the most.&rdquo;<br /><br />Thomlinson says the freezing of the credit markets in this recession makes it very different to the last one the firm faced in early 1990s. He says: <br /><br />&ldquo;Then interest rates were around 10 per cent and people were really bleeding. There was a lot of pressure to sell houses to turn the property into cash.&rdquo; <br /><br />He adds: &ldquo;Now rates are low, people don&rsquo;t have to sell and are waiting until we hit the bottom of the market to see prices rise again. There is a general inertia in the market. But I feel we are getting close to the bottom of the market. This is not my research team talking, this comes from me talking to clients and my experience of previous downturns. There is a general feeling that things won&rsquo;t get any worse &ndash; an element of &lsquo;Look, let&rsquo;s get on with our lives now.&rsquo; We are very nearly there.&rdquo;<br /><br />He says that by the end of the year we will see the residential market &ldquo;gradually returning to normality with more steady pricing.&rdquo;<br /><br /><strong>FOLLOWING RIVALS<br /></strong>During the decade of rising property prices Thomlinson says the firm, like its larger listed rivals &ndash; such as CB Richard Ellis and Savills &ndash; expanded quickly by opening new offices and buying smaller rivals. But Thomlinson wonders if the partnership was wise to slavishly chase these smaller players. <br /><br />He says: &ldquo;Our plc competitors were driven by shareholders&rsquo; need to see the business grow. We followed suit to some extent, because there was a feeling in the wider market that we were being left behind. He adds: &ldquo;But big is not necessarily beautiful. The lesson we have learned is stick to your core business.&rdquo;&nbsp;&nbsp;&nbsp; <br /><br />The firm, founded in 1896, has a record of handling high-profile sales. In 1991 it sold the Crystal Palace to Lord Plymouth for &pound;210,000 and in 1915 it sold Stonehenge for &pound;6,600 to Cecil Chubb who gave it to his wife as a present. She gave it back to the nation three years later.<br /><br />It is clear Thomlinson&nbsp; expects to weather this downturn. It seems that he will succeed: most economists believe that the bulk of the slump in house prices is now over, and all the surveys confirm that there has been a resurgence in property transactions. Commercial property remains much tougher, however, with rents at very low levels and likely to stay that way. But remaining in profit throughout such a terrible recession is no mean feat &ndash; and suggests Knight Frank will be well-placed when the recovery begins in earnest next year.<br /><strong><br />CV NICK THOMLINSON<br /><br />Age: 56<br /><br />Work: </strong>Joined the Knight Frank graduate training scheme. Qualified as a chartered surveyor and worked in its City office for eight years before being posted to Hong Kong in 1984. Returned to the UK and set up the Docklands office in 1986. In 1990 he became head of its London residential unit, and ten years later led its worldwide residential division. In 2004 he was elected senior partner and chairman of Knight Frank.<strong><br /><br />Family: </strong>Married with five children<strong><br /><br />Lives: </strong>Wimbledon and a house in Tuscany <br /><strong><br />Hobbies: </strong>Tennis and art collecting&nbsp; <br /><strong><br /></strong>