Brexit and the US-China trade wars depressed turnover and profit at Knight Frank last year, but the agent remains confident that 2020 will prove to be another strong year for the business.
Fresh trading figures for the LLP, for the year ended 31 March 2019, show group turnover down by 2% to £517.4m and group pretax profit down by 11% to £148.4m.
The declines were off the back of record trading in the previous year.
Alistair Elliott, senior partner and group chairman, said: “Coming off the back of a record year, we are very encouraged by our performance in 2019. We experienced widespread political and economic uncertainty that resulted in a slowing in transactional activity across many of our principal markets.”
Elliott said the two areas that had constrained growth were the traditional London residential sales market and capital markets.
“If the investment markets had continued their volumes into the first quarter of this year it would have been sufficient to have given us another record year.” said Elliott.
The return of resi
While volumes in London residential were significantly down as stamp duty continues to deter local buyers from trading and Brexit uncertainty hampers the number of sales going through, year-on-year, Elliott said that volumes in its residential business were actually higher.
According to Knight Frank, the number of new prospective buyers registering their interest in purchasing a home in prime central London increased by 29% in the year to September compared with the previous 12 months, with total potential spend of buyers in London registered through Knight Frank reaching £55bn in September 2019 – the highest such figure in more than five years.
Elliott said that some of that uptick was currency-driven by overseas buyers with some caused by the drop off in pricing, which was encouraging Londoners to start trading again.
More worrying than Brexit
Globally, the US-China trade war has impacted the business and is more of a threat than Brexit, which Elliott believes is merely slowing investment into the UK, not stopping it.
The on-going US-China trade war is a contributory factor to the global slowdown, said Knight Frank, and is reinforcing a trend for lower Chinese investment across the globe.
“The increasing uncertainty in Asia Pacific is going to make trading in Asia Pacific difficult in the current year, and we are seeing that in our figures,” said Elliott. “We are expecting to have a tougher year-on-year performance in Asia Pacific.
He added: “That said, the exciting prospect is there is a gathering of, and much greater appetite for, investment in real estate. People are looking for yield and people are looking to invest in real estate. They are hesitating in the UK because of Brexit. As soon as Brexit has got any kind of clarity, we believe those markets will come back in volume quickly.”
With traditional UK investment volumes depressed – figures are currently around 35% lower than this point last year at £30bn – Elliott said Knight Frank was making up the deficit through strength in other areas of its business.
“Residential sales volumes have slowed down but residential lettings have increased, so it’s almost balancing out,” he said. “In traditional investment markets, as the volumes of London investments slow, we’re trying to make sure we capture that market share in senior living, healthcare and hotels.”
And Elliott is confident that, so far, it is working.
“Year-on-year, our trading looks like it’s going to be a little bit better this year [12 months ended March 2020], than it was last year,” he said, with the caveat: “But it’s still a long way to go and can still fall off a cliff.”
Maintaining margins
Despite the declines in turnover and profit, Elliott said that Knight Frank has sought to main a strong margin of 29% so that it can continue to invest in staff and grow its footprint.
“Because we are focused on keeping debt out the business, because we are focused on profit, we are keeping our margins at a level where we can reward our partners and teams really well,” said Elliott. “We’re trying to ensure prudent management between retaining money every year for future investment, which is tough in a partnership but we’re doing it.”
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