Savills hit as working from home leaves offices empty

SAVILLS is facing “challenges” in the real estate market as remote working dampens demand for office space.

The estate agent blamed a downturn in transactions on continued uncertainty “over the future role of offices”, which has been rife since the pandemic.

Companies around the world have been downsizing their office estates since the shift to hybrid working.

This includes HSBC and Clifford Chance, which are among two of the biggest companies in Britain to have announced plans for smaller offices.

In a trading update yesterday, Savills said: “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.”

Despite this, Savills expects its fullyear performance for 2023 to still be in line with forecasts after earnings from its consultancy and property management business held up.

The group will report its full-year results for 2023 on March 14, with analysts predicting that underlying profits before tax will range between £85m and £97m. This will amount to a drop of around 44pc compared to 2022 when Savills’ profits hit £165m.

High interest rates and geopolitical volatility have impacted the real estate sector over the past year, Savills said, as economic uncertainty forced businesses to delay leasing new office space, particularly in Germany, France and the US.

Germany has recorded the slowest recovery from the pandemic of any country in the G7.

Gross domestic product in the country shrank by 0.1pc between July and September, sparking expectations that the economy will into another recession, defined as two consecutive quarters of falling growth.

Closer to home, Savills said the UK housing market has also faced “difficult market conditions”, particularly outside of London.

However, the company remains hopeful for 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.”

Lower prices, expectations of cheaper borrowing costs and expiring fixed-rate loans should support all boost transactions in the first six months of the year, Savills said.