Knight Frank profits jump 14% to £166.7m led by resilient global markets

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 a 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.

Results for the year ended 31 March 2018:

• Group turnover up 10% to £525.9m (2017: £476.2m)
• Group profit before tax up 14% to £166.7m (2017: £145.7m)
• A strong balance sheet with net assets at £262.9m (2017: £224.7m)
• Asia-Pacific operations in Knight Frank delivered record turnover and profit, with the firm’s businesses in Singapore and Hong Kong achieving their best years yet

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 the Asia Pacific and records for our valuation and advisory businesses in Europe, Asia Pacific and EMEA and for our official agency business in Europe.

The 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.”

Commenting on the performance of Knight Frank India, Shishir Baijal, Chairman & Managing Director said, “India’s performance and contribution to the company’s achievements in the last year have been noteworthy. 2017-18 was one of the best years in terms of revenue with a significant rise in profits for the India operations. We have seen consistent growth across all our services, beating the general market sentiments, basis the value-based services provided to our clients. In the next few quarters, we are looking at entering a new phase of growth adding to our specialisations as well as our staff count to ensure greater market reach.”

Market overview

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.

Residential:

Our key UK residential markets continue to experience tough trading conditions. The combination of very high stamp duty on £1m+ residential purchases and, to a lesser extent, the impact of Brexit uncertainty in consumer confidence, has acted to push sales volumes lower and put downward pressure on pricing. Central London has been the market hardest hit by these factors, although here lower prices have begun to support sales volumes.

Prime European residential markets have seen an uptick in performance, boosted by improved economic conditions. France, Italy and Spain, in particular, have seen improvements in demand from the UK and Northern Europe, with markets like Madrid leading with strong price growth.

Middle Eastern real estate markets have softened over recent months as commercial occupier demand has slipped. Despite this wider slowdown, there are pockets of relative outperformance, particularly in prime market sectors. The recent recovery in oil prices is positive for the local economy. Should crude oil sustain its recent price rise, we should start seeing positive ramifications on the economy and real estate market conditions.

Residential markets across Asia-Pacific have seen mixed performances with Chinese cities experiencing a slowing of growth, which had been at spectacular levels, while a resurgence of demand and pricing in Singapore is now falling back following newly introduced government cooling measures.

Measures aimed at calming price growth and dampening demand in housing markets remain a feature in markets as far apart as Canada, New Zealand and Australia –affecting the direction of investment flows from cross-border purchasers.

Gradual moves to higher interest rates are pushing investors to focus on income returns and value creation across global markets - with a growing focus on regeneration and infrastructure led opportunities.