Segmental Reviews

Transactional Advice

Our Transactional Advice business comprises four major elements:

• Capital Markets – we advise a wide range of investors including institutions, REITS, sovereign funds and private clients on buying or selling commercial property throughout Europe, Asia and, since July 2007, the US.
• Occupational/Corporate Services – we provide letting advice to property owners and represent tenants and owner occupiers in negotiations on acquiring/disposing of their accommodation including offices, retail and industrial. We continue to support the business needs of global corporate occupiers in providing them with a full range of strategic, advisory, professional, transactional and management services across varied property portfolios and asset classes.
• Residential – we act for vendors of residential properties and also have a specialist purchasing business in the UK.
• Development – we advise on acquisitions and disposal of development land/sites.

Performance in 2007

Overall we increased transactional revenues by 23% to £304.1m, which represents 47% of total Group revenue. Underlying profit before tax increased by 5% to £48.6m, representing 57% of total Group underlying profit before tax. Overall margins were down 3% reflecting the slowing investment market particularly in the UK.

In the first half, investment markets across the UK and Europe were strong with all asset classes being in demand from both local and international investors, resulting in rising prices and falling yields. The second half was very different following the global credit squeeze, saw a decrease in investment activity, particularly in the UK and US.

In continental Europe, investment markets remained firm and were less affected by the credit squeeze. Germany, in particular, was popular with investors seeing good rental growth opportunities in all sectors.

In July 2007 we acquired a capital markets business, Granite Partners LLC, in the US (now Savills Granite), which traded in line with our expectations in the second half. This was a good performance in a market where the impact of the credit squeeze was most noticeable.

In Asia, our Capital Markets team had a successful 2007, with major increases from our businesses in Hong Kong, Macau, Singapore and Australia. The addition of a new office in Taipei, together with new offices in Chengdu, Dalian and Tianjin in Greater China plus the opening of Savills offices in Hanoi and Ho Chi Minh City were additional factors contributing to the growth of transactional income.

Our Occupational business is focused mainly on London and the other European capitals. Demand in the London City market was mixed with some large potential requirements for additional space from financial sector tenants being put on hold. In the West End, strong demand resulted in record rents being achieved throughout the year for Grade A accommodation in prime locations. In the rest of Europe, tenant demand remained firm, with many international occupiers expanding their operations throughout Europe, leading to a number of pre-lets in many major cities where there remains a severe shortage of good quality, well located buildings.

The UK residential agency market experienced a confident start to the year; prime Central London saw price growth of 16% in 2007, with the super prime market reaching as high as 39%. However most of this growth occurred in the first half of the year. In the second half, market sentiment slowed and there was minimal price growth. The country market also showed strong demand during 2007, although this tailed off in the Autumn.

The UK residential development market experienced strong demand for land for more traditional housing as there is still a lack of supply in most parts of the UK. However, the market for new build apartments, where government policy focused growth on high density apartment schemes, has led to over-supply in some regional cities. Prime Central London developments continue to perform well.

Key achievements of 2007

We continued to expand our Capital Markets teams in all regions. In Madrid, where we recently recruited a new team, we advised on the largest transaction in Spanish history advising Pontegadea on the acquisition of an 11 building portfolio from Santander Bank, for a price of €500m. In December, the Madrid team also advised Deka Immobilien on the acquisition of the PricewaterhouseCoopers headquarters in Mexico City from BCBA for in excess of US$110m.

The UK Capital Markets team transacted more than £57bn of property deals with a number of high profile transactions in the City, London.

Our Capital Markets teams across Asia Pacific had an outstanding year and our Hong Kong and Macau based teams alone transacted more than HK$24bn of property deals during 2007. In China, we completed the sale of two office towers in Suzhou’s ‘Times Square’ for US$ 90m to a Korean fund.

In Australia, our Capital Markets team completed the sale of a A$300m residential land sale at Alkimos, the largest sale of a single residential land holding ever in Western Australia.

In the US, Savills Granite, advised private property investor and developer, The Starmount Company, on the sale of its shopping centre, retail and office portfolio comprising 46 properties for £262m. Savills Granite also expanded its core competencies by adding several new employees with expertise in urban office markets and senior housing. The firm continues to develop its specialty in the sale of medical office properties.

The UK Agency Offices team transacted 5.9m sq ft and the National Industrial team transacted 12.0m sq ft. The teams continue to operate a diversified business model representing owners and occupiers alike and focused on the most prime and large scale developments across the UK. A key transaction for the Offices team involved pre letting 85% of the space at 40 Portman Square, London at rents in excess of £115 per sq ft on behalf of Delancey and Standard Life. They also leased and concluded a sale and lease back of an 850,000 sq ft distribution centre in Nottingham to B&Q plc.

A key achievement for the Retail Warehouse Agency team was being retained by B&Q plc to market their surplus stores and we sold approximately 400,000 sq ft in 2007. Additionally, we now act on over 100 retail parks throughout the UK for leading landlords, such as British Land, Hammerson and Land Securities.

Food stores remain a key area of growth and we now have a dedicated Food Store team. Our retail development work in the food store sector, primarily for Tesco, has included providing development consultancy advice on several major schemes, and acquisition advice on sites across the country from the north of Scotland to the Home Counties. We also provided brokerage advice on the acquisition of two portfolios of stores from Somerfield. In total, our work for Tesco resulted in them acquiring over 300,000 sq ft of retail space.

Our Leasing teams in Australia were particularly active and included leasing 51,000 sq m, the whole of Darling Park Tower 1, to the Commonwealth Bank Group, believed to be the largest leasing transaction of an existing building.

During the year, our UK Residential business continued to expand, opening new offices in Barnet, Chester, Bournemouth, Cheltenham, Loughton and Stratford-upon-Avon, as well as strengthening many of our existing teams. We acquired Christopher Rowland, with offices in Northwood, Rickmansworth, Amersham and Chesham. Overall in London, transactions were up 12% over 2006 with an average sale price of almost £2m, compared with £1.45m in 2006. The London region set new benchmarks for prime houses in Belgravia at over £3,000 per sq ft in February with a sale price circa £30m. In the country, transactions were up by 30% over last year at an average sale price of £875,000. Achievements include the sale of ‘Polwartha’, Rock at a guide of £4.95m (the highest price per sq ft for a house in Cornwall).

Savills marketed 26,000 acres of farmland representing over 14% of the land openly marketed, once again proving to be the market leader in this sector. Out of 16 farms and estate sales over £10m in the UK, Savills sold 11. Those sold included The Park Place Estate, near Henley in Oxfordshire, an unmodernised house set in 499 acres sold with a guide price of £45m.

Prime Purchase, our purchasing advisory business, which specialises in acting on behalf of retained buyers of residential property in both London and the country, had an exceptional year. In 2007, the average search time in London was just 3.9 months. In the country, over 56% of properties were secured for clients either privately or before advertising.

We have continued to grow significantly our Development Land team throughout the main UK cities. Savills were instructed by Derwent London plc to dispose of Greenwich Reach, London, a mixed use development site of 7.8 acres. Planning permission was granted for the redevelopment of the site to provide 980 residential units. The development was sold for £112m to Galliard Homes Ltd.

From our 24 regional New Homes centres we are providing consultancy advice or have concluded terms of business on residential developments with a combined gross development value of £20bn. We continue to maintain a high market share within prime Central London with strong off plan sales being achieved at premium prices frequently to overseas buyers for internationally recognised developments such as One Hyde Park. Nationally, interest in investment properties has slowed with some localised markets becoming oversaturated; however, many creatively marketed well-priced city centre apartment schemes have still sold well.

In Singapore, our Residential Sales team were very active and concluded more than S$1bn (£360m) of en bloc sales in the second half of 2007 alone, including the sale of Westwood Apartments to a Malaysian conglomerate for S$435m (£156m).

Future plans

We will continue to develop our Transactional businesses worldwide through a mixture of acquisitions and strategic recruitment.

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