Top end of property market shows strain

SHARES in upmarket property group Savills plunged 13 per cent yesterday after a full-year profits warning triggered by a slump in deals across its US, European and mortgage broking business.

Savills, which has 150 employees in four offices across Scotland, cautioned that 2008 underlying pre-tax profits would be significantly below market expectations.

The market was also jolted by the company's announcement that it was placing its dividend policy under review. The shares later closed down 9.6 per cent at 226p.

One analyst said: "There will be a cloud over the shares until the divi situation is clarified."

The group said its UK residential and commercial operations, as well as the Asian businesses, had performed as forecast in Q4.

But its mortgage broking arm and businesses in the US and Europe were suffering from a steep fall-off in transaction volumes over the past three months.

The group said: "Whilst some deals are completing, we are not seeing the seasonal pick up in activity we have grown to expect.

"Many pipeline transactions, which were at an advanced stage, have either been delayed or are not proceeding."

Savills, widely seen as a barometer of the health of the top end of the economy, said its consultancy businesses were also "starting to see the effects of the challenging market conditions with a slowdown in new instructions".

Savills said it expected to make further job cuts across Europe.

The company, which also operates in property planning and valuation consultancy, fund management and financial services, said December was an important trading month and stressed billing was still taking place.

The group is best known in the UK for its estate agency and commercial property investment businesses, although about 40 per cent of its operating profit comes from its other operations. The group said its property management division was holding up well.

Fund management has seen "modest" fund raising during the year and fees have been lower than planned, it added.

The impact of the UK housing market slump has also taken its toll on the group's financial services business.

Savills hopes to weather the storm by switching focus away from transaction income and said it had "major strength" through bank facilities committed until 2011.

Analysts at Numis Securities said in a note: "Overall, it is clear that Savills is outperforming its peer group and the strength of its balance sheet will ensure that the group can take advantage of opportunities once they emerge."