Background
When we released our results for the six months ended 30 June 2005 on 7 September 2005 the Chairman reported a particularly good performance in the commercial markets, both in the UK and overseas. Whilst the UK prime residential markets had a slow start to the year, the London prime market improved in the second quarter and the Board remained confident that the growing spread of Savills’ business both on a geographical and product basis meant that we were well placed to achieve good results for the full year. That confidence was justified and we set out below an update of our trading position for the year ended 31 December 2005, prior to the announcement of the preliminary results on 8 March 2006.

Main Business Streams

Transactional
Office markets in London and the South East showed increasing signs of recovery in the final quarter of the year and the regional markets remain stable. Tenant demand for the best retail schemes, both in and outside of town centres, remained strong.

Commercial investment markets remained very active in 2005, with demand continuing to outstrip supply. As a result commercial property investment yields have hardened. Investors still see commercial property as an attractive asset class and demand remains strong; Savills has been well placed to take advantage of these excellent market conditions.

After a slow start to the year, momentum in the prime residential markets strengthened in the second half of 2005, with a marked upturn in activity in the last quarter and our under offer book ahead of the same period in 2004. Savills’ focus on high quality products in prime markets should provide some buffer against the impact of any downturn in the new homes market.

In Asia, resurgence in property prices during 2005 has had a significant impact on transaction volumes and both our commercial and residential investment sales teams have enjoyed considerable success.

Consultancy
Savills’ consultancy business has continued to make excellent progress across the board in 2005.

The valuation business expanded substantially during the year and has grown its revenue streams. In Hong Kong and China, we recruited a valuation team of 35 professionals who are well respected in the region. They have integrated well in to the business and are making a good contribution.

Property Management
Income from the Property Management business continued to grow and we are now beginning to see a real contribution from this expanded area of activity. Our portfolio of shopping centres under management grew by nearly 40% in the UK. During the year we also acquired property management businesses in Paris and Berlin and, as announced on 19 December 2005 recently acquired a 50% share in two Korean businesses with over 10m square feet of Grade A office space under management.

Financial Services
Despite difficult market conditions, Savills Private Finance had another outstanding year and performed ahead of plan. The overall mortgage market has retracted slightly but despite this the business continues to grow. After the opening of a number of new offices in 2004, this last year saw the business consolidate its position. A new office opened in Leeds, providing Savills Private Finance with a presence in a key UK regional market.

Fund Management
The last six month period has been marked by significant fund and infrastructure development. In Italy, the €283m equity raised for Europa Immobiliare No 1 has now been invested, a number of senior level appointments have been made, and the business has gained approval from the Bank of Italy for its own SGR (the regulated Italian fund management company). In the UK, Cordea Savills Wealth Management has launched three new funds for the private investor market and new funds are also under development for the Charities and Institutional segments of the UK market. These include a Student Halls Fund where Savills has financed the purchase of £64m of seed assets.

Overview
Commercial markets have been very active, particularly on the back of strong investment demand. Driven by the expectation of a recovery in the office leasing market for 2006 we have seen an intensification of investor demand for this sector. There is also a growing interest in development projects and this will continue to provide opportunities for our professional teams.

Prime residential markets are currently proving considerably more robust than mainstream markets and, while financial markets remain active, this trend should continue. With an exceptionally strong final month, the results for the year ended 31 December 2005 will be ahead of expectations.