The rising cost of debt and the war in Ukraine are threatening to derail the recovery of global property markets, according to high-end real estate agent Savills.
The company said on Thursday that residential and commercial property sales were being hit by worsening economic and geopolitical conditions, sending its share price down as much as 13 per cent to £9.74 following the announcement.
The European commercial real estate market started the year strongly, but sales slowed in the second quarter of the year, particularly in Germany, said Savills.
In the UK office market, a frenetic start to the year gave way to a sharp fall in dealmaking as rising rates started to hit in the second quarter.
Savills’ chief executive Mark Ridley said a gap had opened up between buyers and sellers of offices, and predicted prices would have to fall to get the market moving again later in the year.
Similarly, the company’s US office business remained sluggish despite the lifting of Covid-19 restrictions, “as a result of growing economic concern for the remainder of the year”.
In Asia, commercial property sales were almost a third lower than in the same period last year because of the emergence of the Omicron variant, said Savills.
Even the UK’s high-end housing market, which investors have recently turned to as a safe store of wealth, is showing signs of strain, according to the agent. Sales of multimillion-pound homes remain “robust”, but “price growth has begun to moderate in response to the rising cost of debt”, said Savills.
“With inflation driving interest rates up globally, a new experience for many market participants, real estate markets began to adjust in the second quarter. We expect that process to continue through the second half of the year,” said Ridley.
He added that the company remained confident despite the ructions in global property markets, having added to its net cash position over the year and sharply increased revenues from its growing investment management business.
Overall Savills reported first-half revenues 11 per cent higher than the same period last year, at £1bn, but underlying profits slipped by a tenth from last year’s record high, to £59mn.
It said the drop reflected higher wages and the return of entertainment and travel budgets to pre-Covid levels.
Last year, about £30mn of the company’s annual profit of about £200mn came from savings on marketing, travelling and entertaining spending, said Simon Shaw, chief financial officer.
Savills announced it would increase its interim dividend by 10 per cent to 6.6p.