20 July 2017, Malaysia – In the eyes of the Ultra-High-Net-Worth individual, the Super Cities* are still an attractive investment, as evidenced in Knight Frank’s inaugural Active Capital Report. At 41%, Los Angeles and Sydney registered the highest proportion of private investor transactions in 2016. Over in Asia, Hong Kong was top of the list at 31% with Shanghai, Singapore and Tokyo trailing closely behind at 24%, 27% and 22% respectively. This long-standing interest in the Super Cities stems from the latter’s solid fundamentals including tenant demand, liquidity and transparency.
Private investors, already a strong presence, are becoming an increasingly important force in the global real estate marketplace. 27% of all global commercial property transactions in 2016 involved a private buyer. Furthermore, a quarter of wealth is held in real estate investments of some kind (excluding primary residences and second homes), the highest allocation since records began. Many of them have shown a preference to invest in commercial property within their country of residence (Asia 44%, Europe 40% and US 36%) as compared to outside the country they live in (Asia 26%, Europe 25% and US 24%).
As private investors grow in importance, institutional investors are realising that they are a key buyer type whose drivers are often very different to their own and need to be understood; as they are likely to either be competing against them in a purchase negotiation or trying to sell to them as part of an exit. Private investors are expected to continue to take global market share as both the number of wealthy individuals and their assets grow. The number of Ultra-HighNet-Worth Individuals (UHNWIs) – those with US$30 million or more in net assets – rose by 6,340 in 2016 alone, taking the total to 193,490.
1. The Knight Frank Super Cities are Los Angeles, New York, London, Paris, Berlin, Shanghai, Hong Kong, Tokyo, Singapore, Sydney.
Nicholas Holt, Head of Research for Asia Pacific at Knight Frank, says, “Real estate has long been the cornerstone of the private investor’s investment portfolio. This situation continues to evolve as private capital becomes more knowledgeable around the intricacies of commercial real estate; with many investors having now taken their first steps into incomeproducing office, retail and industrial assets. In Asia, with the number of UHNWIs set to increase by 91% over the next decade, we expect this trend to continue and private capital to play an increasingly important role across the major markets within the region.”
The appetite from private investors for commercial property, in particular, will continue to increase over the next few years. In Asia, 81% are keen to invest in commercial property within its region, 32% in Europe and 24% in North America. In contrast, only 7% of European private investors are keen on commercial property in Asia with 95% preferring to invest within Europe. North America paints a similar picture indicating no interest in Asia (0%) with a strong preference for domestic commercial property (93%).
However, when it comes to the type of commercial property, private investors in Asia, Europe and North America share a common liking – residential and office space.
Asia is starting to challenge the US in terms of the largest regional population of UHNWIs. At present, Asia is home to 27,020 fewer ultra-wealthy people than the US, but by 2026 this difference will have shrunk to just 7,068. However, while North America may not top the growth rate charts, it will remain the largest hub of UNHWIs in 2026 and growth will continue to outstrip that of many other developed economies. As China continues to lead the way in Asia, places like Vietnam, Sri Lanka and India will also see substantial expansion.
While the drivers behind the investment purchases will vary greatly depending on the motivations of the individual, there are a number of investment themes in the market.