Knight Frank has recorded double-digit growth in both profits and revenue, buoyed by a record performance from its UK regional offices.
The group’s turnover rose 10% to £525.9m for the year to 31 March, while profit grew by 14% to £166.7m.
“We’ve had a couple of years or so where I have been encouraged by our improvement in market presence and turnover, but I have been saying the profits were constrained because of our investment in infrastructure and people,” said Alistair Elliott, group chairman and senior partner.
“Some of these numbers are purely reflective of markets being good and strong, but it is partly because we have outperformed the market in areas and that we have been building a business for the future,” he said.
The strength of its non-London offices was aided by leasing deals undertaken by the Government Property Unit and HMRC and investment transactions off the back of them, as well as blue chip corporates establishing themselves outside the capital.
“We have got more of the best people than we have ever had in the regions. Some investors are also finding pricing in London a little rich, or have a full allocation for London and are looking elsewhere as diversification.
“It’s also that regional cities are now offering a much more cohesive investment proposition, with the right sort of housing, commercial, mixed-use as well as growth,” Elliott said.
Tough resi market
Around half of the company’s UK business is residential, predominantly focusing on high-end sales, and Elliott admitted it had been a tough year in this area – though better than he expected.
“Whenever I look at our numbers I think it’s not too bad considering how sentiment is, but equally it is hard work. Buying and selling second-hand homes in London is really hard. Volumes and pricing are down, but that has been counterbalanced in part because of growth in our residential lettings business that had a phenomenal run.
“The sale of new homes around London and development land sales is also still ok. It’s not easy or stellar, but we have come off a stellar period and it’s now back to normal,” he added.
“I’m not pretending that London house pricing isn’t adjusting, because it is, and it is tough and volumes have been down, but we do have a diverse business now whether that is in retirement living, PRS, student housing or lettings.”
Deals across borders
Knight Frank does not formally break down UK and non-UK in its figures, as offices contribute to deals across borders, but it is estimated at a third domestic and two-thirds overseas.
With the company taking on a number of new teams overseas, its staff costs rose over the year by 12.3% to £227.1m.
Knight Frank delivered a much improved performance in France having dramatically revamped its team, along with record years in Germany, Czech Republic, Belgium, Hong Kong, Singapore and Asia Pacific as a whole. Elliott said that there was major opportunity for growth in the Far East.
“Asia Pacific is probably where we can make biggest difference in terms of our scale and that is a big focus for us and we are eager to take on new teams. We had a real turnaround in France, where we were lagging, but we took on a new team and that was reflected in our performance.”
Moving in the right direction
Some partnerships like Knight Frank have struggled with pension deficits, but Elliott said that while this was something management was watching like a hawk, it was not a major problem. Pension liabilities dropped to £9.8m from £16.8m the previous year in the context of £262.9m of net assets.
“We have a pension deficit but it is being absolutely managed and at the moment it is moving in the right direction. We are incredibly cautious in that area and want to stay ahead of the game. If actuarial calculations produce something different in the year to come we will adjust provisions accordingly but we are absolutely on top of it thank to our FD and the team,” he said.
Despite the company’s strong performance this year, Elliott predicted it would be harder to produce the same sort of numbers for the year to 31 March 2019, and he is cautious over the headwinds that Brexit may bring.
“I’m hopeful but cautious and I think it will be harder. If hesitancy increases towards the end of March then without doubt that will be reflected in our numbers,” he said.
“If the political messaging becomes less clear and creates more uncertainty our markets will undoubtedly pause. If that language becomes more sensible and joined up and it looks as though they will produce a conclusion, then the UK is very well set and the markets will come back into life.
“But if you look at the occupier deals done in London you have to take some heart that big business like Unilever and Chanel are still making massive commitments.”
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