Alistair Elliott, senior partner and group chairman commented: “I am pleased to report another very strong set of results for the group. Our turnover increased by 10% in the face of volatile markets and political conditions around the world and we improved our margins with profit up 14%. We believe that this is a reflection of the success of our concentration on organic and strategic investment in people over the past five years and is a tribute to the quality of our teams across the globe.
“If we reflect on our progress over the ten years since the financial crisis, there is good reason to feel confident. Since 2008, we have substantially increased the scale, breadth and scope of our business and, recognising the cyclical nature of our markets, we have retained profits in order to build a strong balance sheet that has no net debt. We think that this is particularly important in the current environment.
“Our investment in technology continues apace as we continue to put our people and clients at the heart of what we do. Through our technology board, we investigate and adopt technologies that will improve client service and are right for our business without impeding on the personal relationships, on which we remain firmly focused.
“In 2017/18, the UK again delivered very encouraging results, despite the ongoing uncertainty about outcomes surrounding Brexit. All our service lines performed strongly with a record result from our UK commercial business backed by another outstanding year across our UK regional offices. Our UK residential business also performed robustly, with pressures on the London and Country sales markets offset by a record year in lettings and new homes development and sales.
“We continue to grow our global network, focusing on the 12 gateway cities that represent locations where we believe we can make the greatest impact. Our Asia Pacific operations delivered record turnover and profit, with our businesses in Singapore and Hong Kong achieving their best years yet. In Europe, our teams in Germany, the Czech Republic and Belgium also achieved record years and we are delighted to see a strengthening in our French performance, a testament to the strategic recruitment of key individuals in our Paris office. Our global service lines outperformed, with record years for capital markets in Europe and Asia Pacific and records for our valuation and advisory businesses in Europe, Asia Pacific and MEA and for our office agency business in Europe.
“Mobility of staff, training and development remain central to our strategy of recruiting and retaining the best people in key areas around the world. Across our network, we are resolutely committed to embracing diversity and are taking a leading position in the industry to achieve this. We believe the solution lies in education and information about our sector reaching a wider range of people, from an early age. We continue to take a leading role in many industry initiatives that are making great headway. However, we will have to be patient before we see significant results.
Market overview
“There is no denying that the headwinds in the UK have been significant, with increasing regulation, higher construction costs, a more complex and time-consuming planning process, a substantial rise in transaction costs and political instability. Despite this, aside from the much-publicised structural shift around retail and a cooling in residential prices, the real estate sector is performing reasonably well.
“If the UK real estate sector is to be allowed to continue to play its part then there must be an acknowledgement of the current barriers and an encouragement of investment. We need an urgent review of business rates, especially for the high street. We need to streamline the planning process, and focus particularly on how this might assist the required rejuvenation of those high streets where traditional retail is no longer an option. We believe there is huge potential to reintroduce more homes above shops and a strong chance this may ultimately lead to a much-needed transformation of some high streets and communities.
“The UK population is growing; to operate and remain competitive in a global arena our infrastructure must be a priority, implemented at greater pace and viewed over a 20 or 30 year period.
“We believe a rethink is required on purchase taxes. The multiplier effect of a vibrant homes market across all regions and all price bands is well-acknowledged, and something we need to address immediately. The Government’s recent announcement of a proposed increase in stamp duty land tax for overseas homebuyers shifts the purchase tax landscape yet again. Multiple stamp duty changes in recent years have slowed transaction volumes in some parts of the market by raising costs and creating further uncertainty. This in turn has reduced market liquidity, which is now leading to a fall in the stamp duty tax take. Moreover, overseas investment into new-build property has forward-funded the delivery of much needed accommodation, which otherwise might not have been developed.”
Commercial
The UK commercial market continues to experience mixed conditions. The industrial sector remains strong and is popular with investors thanks to the e-commerce revolution, while the opposite is true for retail. Nationally, the office market is gradually improving and the absence of a Brexit-related downturn in occupier demand is encouraging investors to buy in central London.
In Europe, Germany remains a popular market with investors, with above average transaction volumes in the Netherlands, Spain and Ireland. What’s more, the co-working revolution continues to spread, and is having an impact on most occupier markets, forcing a general supply squeeze in offices.
In the Middle East, a determination to reform domestic economies, through diversifying away from oil, is leading to new real estate development projects. Also, the recent rise in oil prices is refilling the coffers of sovereign wealth funds and increasing the volume of capital available for investment in the coming year.
In Asia, economic growth generally remains strong, with impressive market expansion in South Asia, China and Southeast Asia. The explosion in e-commerce across the region continues to be a major driver of demand for logistics warehouses, while traditional retail remains challenging and co-working is an evolving trend for all major office markets across the region. While the US-China trade tensions, rising debt levels and the impact of rising interest rates in the US are likely to weigh on the region, the outlook for Asia remains broadly positive.
On a global level, cross-border investment demand has held strong, driven principally by Asian investors who continue to see the UK and US as popular destinations. Private equity firms have amassed significant ‘dry powder’ and are seeking greater diversity to spread risk. We expect this to buoy investment demand for commercial property in the coming year. Occupier markets should expect further tech demand and this will be supplemented by the finance sector and professional firms searching for more space.
Matt Phillips, Managing Partner of Knight Frank’s Cardiff office and Regional Commercial Board member commented: “ The business has continued to perform incredibly well. It is fantastic to see the UK regions performing so well and making a notable contribution to the business. The fact that we are able to offer expert local advice and market intelligence which is backed up to international sources of capital and expert knowledge in specialist areas continues to make us one of the real estate advisors of choice. The fact that Knight Frank has retained its partnership status and ethos is increasingly recognised by our clients in our joined-up approach when advising.
“In terms of Cardiff, we have an incredibly dedicated and passionate team here who are at the forefront of many of the exciting developments that are happening across South Wales. This includes the City Centre schemes at Central Square and Capital Quarter, Cardiff Waterside, and Celtic Springs Business Park in Newport. Our consultancy teams have also been at the forefront from a valuation and building consultancy perspective. Our involvement in the residential sector has also grown at pace with our residential development consultancy service and we have also seen our residential home sales firmly establish themselves.”