British commercial property investment plunged by a third in the first half of the year because of Brexit-related uncertainty, while residential transactions were at their lowest since the global financial crisis, according to real estate giant Savills.
Investment activity in greater London commercial property fell 31 per cent in the first half of 2019, while the rest of the country suffered a 33 per cent drop.
Meanwhile the company reported its revenue from sales of new homes was down 10 per cent in the first six months. Underlying profits in Savills’ residential transaction business decreased by 44 per cent.
Uncertainty over the terms on which Britain will leave the European Union has hampered the wider UK property market for months. UK house prices’ rate of growth fell to a modest 0.3 per cent annual rise in July. Experts have warned the housing market is stuck in “Brexit limbo”.
Savills said that in the UK, “political and economic uncertainty has considerably reduced the volume of real estate trading activity in recent months”.
Savills’ profits down amid uncertainty
It was not only in the UK where uncertainty hurt real estate trading activity. In Hong Kong, too, Savills reported a downturn, “although occupier demand remains robust”.
The combined factors drove pre-tax profit down in the first six months. However, the firm maintained it was outperforming its rivals, with revenue growing more than one-sixth.
Pre-tax profit fell to £24.7m in the first six months of 2019, a seven per cent drop on the same time last year. Revenue grew 16 per cent to £847m.
Despite its difficulties, the board hiked the interim dividend to shareholders by three per cent to 4.95p per share.
Net debt swelled 47 per cent year-on-year, standing at £139m at the end of June. Meanwhile the company had cash balances of £161.2m, slightly up on the same time last year.
Why its interesting
The company said it had expected profits to fall slightly, but shares dropped in early morning trading nonetheless.
Globally, it said, demand for income producing real estate remains strong. But political instability and slowing global economic growth are weighing on certain markets.
Savills said trade war between US and China has affected investment confidence in Hong Kong, where office investment volumes fell 34 per cent during the period.
It added that domestic housing market slowdowns in Australia and Singapore have also hit trading.
Meanwhile, slowing growth across the Eurozone has led to “a flight to quality and a lack of supply of prime assets has restricted investment activity”.
What Savills said
Chief executive Mark Ridley said: “Given the lag effect of significant investment in recruitment in the preceding period and facing some challenging transactional market conditions, we had anticipated a slight decline in profits for the first half of 2019. The Group has delivered a resilient first half performance reflecting both the robustness and geographic diversity of our market positions generally, and the strength of our less transactional businesses.
“In many markets, particularly the UK and Hong Kong, political and economic uncertainty has considerably reduced the volume of real estate trading activity in recent months, although occupier demand remains robust. Underlying demand for the secure income qualities of real estate remains high, but these macro uncertainties weigh on investor sentiment and make predictions in respect of near term market activity difficult to determine with accuracy.
“Despite this environment, we have a robust pipeline of activity for the second half, and we currently continue to anticipate that our performance for the full year will be in line with the noard’s expectations.”
More to follow.
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