Property giant Savills today reported a 41% slump in profits as sales of homes and offices collapsed.

Profits for the first six months of the year crashed from £32.5 million in 2007 to £19.2 million this time around.

The firm said it hoped it would fare better in the second half, as in previous years, but warned the challenging conditions “make predictions of full-year performance difficult”.

Chief executive Jeremy Helsby said with Britain teetering on the brink of recession, much depends on how the economy fares in the next 18 months.
“We expect that the UK economy will see slower growth in 2008 and 2009,” he said. “The prospects for 2009 will depend on how quickly the credit squeeze eases and confidence returns.”

He said demand for office space in London was holding up well but warned it was a tale of two cities between the Square Mile and the West End. Vacancy rates in the West End are just 4% but Savills expects vacancies in the City to rise from 9% this year to 11% in 2009 as banks shed staff and new offices open.

“The West End is holding up strongly in terms of tenant demand,” said Helsby. “The City is not as strong as the West End. The uncertainty for the City is whether we see occupiers making people redundant and putting space on the market.”

In the investment market, Helsby said that after a difficult start to the year in which buyers were unable to raise funds, the early signs of recovery were starting to emerge.

German funds in particular have returned to the market. “It is always dangerous to call a bottom to the market but people are now more comfortable buying,” said Helsby. “In London and the commercial investment market we are at or near the bottom. In the regions there is more pain to be had.

“The real challenge is that there is a lack of debt in the market. But while debt is difficult to come by, there is a lot of cash sitting on the sidelines waiting to buy when we see the bottom of the market.”

Savills reported a strong performance in its consultancy, fund management and property management divisions as it moved to rely less on house and office sales. Transactions accounted for 65% of profits and 47% of revenues last year but just 13% and 38% this year.

“Even in bad transactional markets we are resilient,” said Helsby.

Revenues fell 2% to £278.1 million but it maintained its dividend at 6p a share, something many of its rivals have failed to do. Earnings per share fell from 17.4p to 10p.

Chairman Peter Smith said: “2008 continues to be a challenging year for the real estate industry worldwide. However ,we have delivered a robust set of figures.”