The first half of 2023 will be more challenging than last year but the performance of the prime residential markets should offset declines elsewhere, Savills has predicted.
A trading update from the major agency and property brand said the one highlight in the year has been the relative strength of the prime residential market.
Savills said the market continued stronger for “longer than we originally anticipated and helped mitigate the effect of volume declines in commercial transaction activity.”
It is predicting that the “abnormally high UK transaction volumes of the post-lockdown market” will reverse in 2023 as the market normalises to the prevailing economic environment.
The update said: “This is likely to be particularly notable in markets outside London. The international nature of the Prime London market, lower dependence upon mortgage financing relative to the wider markets and attractive valuations in a global context, should partially mitigate the effect of volume reductions in the residential market overall.”
Savills predicted that “challenging macro conditions” are expected to continue with inflation and interest rates remaining in focus for some time.
It added: “As a result, the speed at which individual investment markets recalibrate to the current/anticipated cost of debt is unclear although we expect portfolio valuations to continue to mark to market through at least the first and second quarters of 2023.”
The update said certain markets, such as the UK, are recalibrating faster than in the past, and will be helped by the lack of development supply and an overall trend to sustainability.
Predictions for the full year are characterised by a wide range of possible outcomes, Savills said, adding: “We believe that the first half of 2023 will be more challenging than its 2022 comparative; however, we expect progressive improvement through the second half of the year. “
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