William Beardmore-Gray, Senior Partner and Group Chair, Knight Frank, said: “Commercial and residential property markets around the world have been challenged by rising inflation and interest rates, but I am proud to report strong revenues for Knight Frank within a robust set of results overall.

“Capital markets, leasing activity and residential sales have all been impacted by global economic conditions over the last 12 months, but Knight Frank has proved its resilience through our unrivalled client base among private capital and institutional investors around the world. Our approach of being truly client centric partners enables us to provide the high-quality impartial knowledge to our clients to help them thrive whatever the markets.

“April 2022 to March 2023 was a year of considerable market disruption, and our overall good performance is testament to our global strength, the power of partnership and a great deal of hard work from Knight Frank people across the globe.

“Being a partnership enables us to be distinctly different in the market and to have complete control over how and where we invest. It enables us to take the action needed to make our partnership one in which more people can realise their potential and to continue investing in leading edge research.

“Looking ahead, we are encouraged that in the UK after steep value falls over the previous six months, there is now a stabilisation in the majority of sectors, with values for retail and industrial properties now increasing.

“In residential there is much to be positive about. Build-to-rent, student accommodation and the lettings market are strong and higher interest rates mean the need for our mortgage and personal finance services also continues to be in demand.

“Knight Frank is also making progress in other areas. With effect from 1 July the partnership is making 250 promotions including 51 to Partner and 77 to Associate level: with 50% of Partner promotions and 40% of new Associates being female. Providing meaningful career paths for the best talent in real estate is key to the future success of our business. 

“Our partnership business model ensures that the decisions for the firm are taken by people embedded in the business, who care about the long-term prospects and share in the rewards of achieving those goals.  Showing that there is a better way to do business in a people centric way defines our difference in the real estate world.

“We have continued to diversify around the world, sealing a new alliance with Berkadia (Berkshire Hathaway and Jefferies Financial Group) in January 2023 to develop and provide capital markets services to multi-market clients globally.

“This platform spans all major hubs and sources of capital, including the United States, Asia Pacific, Europe, the UK and the Middle East. We continue to establish new offices in the key emerging markets around the world as well as developing our established network. In recent weeks we have secured a new Partnership with Croisette spanning the Nordics.

“Finally, we are pleased to confirm that Knight Frank will remain an independent partnership, debt free and with a robust platform for future growth.”

Real Estate sector outlooks

London offices:

The London Purchasing Managers Index registered the highest rate of growth in nearly 12 months in April 2023, providing the backdrop for robust levels of occupier demand. The outlook for workers returning back to the office has markedly improved with the enhanced connectivity to London’s business districts provided by introduction of the Elizabeth Line. Moreover, as occupiers embrace new modes of working, office space requirements are increasingly driven to sustainable and amenity rich buildings.

In 2022 almost seven million square feet of take-up was for new or refurbished space with these characteristics, representing almost 60% of all lettings. This is 20% above the long-term trend.

The lack of available prime buildings and structurally higher demand for better quality buildings is leading to higher rents in London’s core City and West End markets. We expect rental tension for prime buildings to remain as the current development pipeline implies a c.8m sq ft undersupply of best-in-class space.

UK housing market:

The further the UK housing market gets from September 2022’s mini-budget the stronger the market becomes. The number of new prospective buyers in London registering in the first quarter of 2023 was 42% higher than the five-year average excluding 2020 (when the COVID lockdown shut down the UK housing market), and new sales instructions were up by 20%.

Outside London housing demand has also remained resilient, with new prospective buyers up 4% compared with the five-year average in the four weeks to May 14 and viewings up 14% over the same period.

In the renting market, strong demand as the economy has re-opened has not been matched by supply. Average rents in Prime Central London grew by 50% in the 24 months to April 2023, and in prime outer London the equivalent increase was 41%.

Global capital markets:

Our 2023 Wealth Report marked a landmark watershed, with private capital in the ascendancy. Institutions reduced real estate investment by 28% in 2022, while private capital was less defensive, falling by only 8% and accounting for a record 41% of the $1.1 trillion committed by all real estate investors.

Residential property was the most popular among private investors at 43% of allocations, followed by offices at 18% and logistics at 15%. London took the biggest share of cross-border investment, followed by Singapore.

Life sciences:

While many property sectors languish, post-pandemic investment in healthcare is driving strong interest in the life sciences sector, with many of the real estate world’s biggest owners and developers assembling large development pipelines to capitalise in this growth.

In the first quarter of 2023 investment into commercial real estate for the Golden Triangle spanning London, Cambridge and Oxford totalled more than £496 million – the highest first quarter investment total on record for the sector. London made up 79% of this total.

Regional offices:

The trend towards corporates gravitating towards the best office space was also reflected in the UK regions, with over 50% of take-up in cities outside London being new or Grade A space and a Knight Frank study also finding that across UK cities 70%-80% of office stock fell short of an Energy Performance Certificate rating of B.

At the end of 2022 the weighted average vacancy rate for offices in the top 10 UK regional cities was 9.8%, compared with 8.9% at the end of 2021. New and Grade A space accounts for just 3% of these offices.

Logistics & Industrial:

Rents are continuing to rise in industrial and logistics markets, driven by macro-trends such as near-shoring and just-in-time production, and we anticipate average rental growth of 5.1% in 2023 and take-up of 36 million square feet in line with the pre-pandemic average of 35 million square feet.

There was a rapid repricing of industrial property in the second half of 2023, with prime yields moving from 3.5% in June 2022 to 5.25-5.50% in January 2023. However, we are now starting to see increased investment activity, with competitive bidding and prime industrial yield compression.

Retail:

Consumer markets have held up far better than anticipated with positive retail sales growth in Q1 (+5.6%). Occupier failure to date has been limited (512 stores affected vs. 2,318 in 2022), with minimal fallout anticipated for the remainder of 2023. Operators’ cautious financial outlooks have resulted in more profit upgrades than profit warnings. The resumption of key operators’ expansion plans has also seen Q1 high street vacancy improve to 13.8%

Capital and rental value declines of the last decade successfully insulated the retail property from recent sharp interest rate rises. Now effectively re-based, retail has emerged as a highly desirable sector for the next investment cycle – currently holding the highest annual income return (6.4%) of all the traditional commercial property sectors.