Savills plc is perhaps best known as a high street estate agent in the United Kingdom, where it is the leading national estate agent, listed on the London Stock Exchange and a member of the FTSE 250 Index.
However, the company’s service offering extends further than typical estate agency provisions – and its geographical reach is far more significant than the avenues of Great Britain. As of year-end 2014, Savills has over 600 international offices spread across Europe, Asia, Africa and the Americas. The company offers a number of consultancy services to residential, commercial and agricultural property owners and developers, and manages property investments on behalf of retail and institutional clients. Since 2000, the company has purchased a number of real estate and property management businesses in other countries, and taken a sizeable stake in others.
This résumé would certainly suggest that Savills is a major growth prospect – both in the short- and long-term.
Nonetheless, it’s always important to look under the bonnet when assessing a company, and Savills shares are no different. One potential area of concern for investors will be the company’s exposure to property markets in emerging markets. During the financial crisis of 2008/9 and the years that followed, Savills hedged against slowdown and collapse in Western markets by focusing on developing markets – particularly those situated in Asia.
At that time, the Asian property market was booming, and foreign investment in housing in burgeoning economies such as China, South Korea and Hong Kong was sizeable. Savills was well placed to capitalise on this surge, delivering Westernised real estate know-how to an inexperienced market. However, since 2014, property supply in almost every Asian country has significantly outstripped demand – in short, real estate has been built at a far greater rate than necessary, and Savills’ business has suffered as a result. The third decade of the new millennium is not shaping up to be a rosy one for China in general – which may suggest that Savills’ operations there will effectively dry up in years to come, leaving the firm with the problem of where to look next so they can buttress the Western-focused portions of their business.
Another concern will be that Savills’ prosperity in Western markets is almost invariably tethered to the state of interest rates. In the UK, for instance, the Bank of England’s decision in 2009 to fix interest rates at 0.5 percent precipitated a mild housing boom. Despite the Bank’s decision to maintain that virtually non-existent interest rate for many years afterwards, every other quarter there is speculation that rates will rise – and by how much. This hypothecation almost always rattles the property market – while typically in a small way, it does adversely impact Savills’ fortunes temporarily. The canny day trader may be able to capitalise on one of these fluctuations. The more long-term minded investor may wish to avoid Savills shares outright, as when a rate rise finally comes to pass, it is likely to have seriously negative consequences for the firm.
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