Summary and outlook

The prospects for private wealth in real estate.

21 January 2014, Words by Yolande Barnes

 
Growth

• Private wealth has increased and changed the nature of real estate investment since the US financial crisis took hold.

• It has been an important driver of global real estate markets, and it is set to become more important.

• Cross-border real estate investment by the ultra-wealthy is currently lower than that from corporate and institutional buyers, but has been growing in recent years – and is set to grow further.

• Private wealth is different to corporate and institutional money in terms of target returns, sectors, jurisdictions and time scales. This means that it can out-compete conventional funding sources on certain propositions.

• In recent years there has been a tendency for UHNWIs to focus on trophy properties, including more residential and niche propositions.

• We anticipate that some UHNWIs will start to move away from the “safe-haven” store of wealth investments, intended primarily for capital growth and wealth preservation and instead begin seeking more productive, long-term income-producing positions.

New markets

• Real estate investment has been focused on cities rather than whole countries. This is true for both private and corporate money.

• These now fully invested in cities like HK, NY, Singapore and London may extend their search to other types of asset in future. This would benefit real estate markets.

• Only the US cities with long global reach: New York, Miami and Los Angeles will see significant cross-border activity. The main recipients of private cross-border investment are European markets rather than US ones, but Chicago, San Francisco, Seattle, Washington and Boston should be on a “watch” list.

• The US market is large and mature but overwhelmingly domestic. Its growth prospects will be diminished because American UHNWIs will grow more slowly than those of Asia.

• European real estate markets are the largest and attracted global inward investment, relative to size. Europe is poised to attract more private property investors who will be increasingly familiar with the region’s strong offering in city properties and well-known residential destinations.

Opportunity

• Private wealth may perhaps be seen as more adventurous geographically and across sectors and maybe less adverse to development risk – given the right returns. It has ideal characteristics for the development of new markets and new products.

• Most future growth in UHNWI numbers will come from Asia. Asians are more likely than any other group to invest in real estate, to have made their money from it.

• The “retreat” and leisure-destination markets are still young and very small in Asia, but could be set to explode as UHNWI buyers increase and mature.

• UHNWIs will be competing more directly with institutional investors in future but, being more opportunistic and less constrained by formal criteria, are more likely to become pathfinders and pioneers than corporate investors.

• We anticipate that in the future a growing proportion of large real estate transactions and cross-border transactions will involve privately wealthy investors and become more diverse in nature as a result.

 
 

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Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883