High-end property group Savills has said 2008 prospects hinge on how soon financial markets shaken by the credit crunch recover their stride.

Despite a 14% rise in underlying profits to £85.5 million last year, the company said uncertainty over City bonuses had driven a 2% fall in prices among prime central London properties in the final three months of 2007.

Savills is now expecting low property turnover and flat house price growth in 2008 following the credit crunch, which has also hit prices in the commercial property sector.

Chairman Peter Smith said: "The outlook for our UK and US commercial businesses and our UK residential and mortgage broking businesses continues to depend on how quickly confidence returns to financial markets."

Although question marks still hang over US and UK markets, Savills said it benefited from a wider geographical spread as its Asian and European businesses proved more resilient. Shares in the group rose more than 4%.

Around 5,000 eligible staff at the group shared a bonus pot which increased 20% to £152 million.

Incoming chief executive Jeremy Helsby said Savills' strong financial position and cost controls left it "well placed" to take advantage of possible opportunities thrown up by the credit crunch through either acquisitions or lower commercial property prices.

But the economic uncertainty also means the pace of growth at its UK residential arm - which accounts for around 20% of revenues - will slow this year. The business opened new offices at sites including Chester, Bournemouth, Cheltenham and Stratford-upon-Avon in 2007, but the focus this year will be on improving productivity at existing outlets.

Turnover in the new homes market was "noticeably down" in the last quarter of 2007 as demand from buy-to-let landlords and other investors tailed off, Savills added.

It said 2008 would be "challenging" for the property sector but added that demand for office space in the UK regions remained stable, despite a subdued London market.

Mar 12, 2008