At a time when prime London residential property has been flat-lining, the wealthy from abroad still regarded the UK as the go-to country when it comes to acquiring commercial real estate.
New analysis from Knight Frank shows that overall wealthy private investors increasingly regard commercial property as an concrete investment asset, whether it is located in the UK or abroad. Real estate investments reflect the search by these investors for safe returns in a global low yield environment.
An estimated 27 percent of all global commercial property transactions in 2016 involved a private buyer, it says. A quarter of private wealth is held in real estate investments of some kind, excluding primary residences and second homes, which is the highest allocation since records began (see table).
The UK heads the countries which private investors indicate they would most like to invest in, Knight Frank polling suggests. Next comes the US, followed by Germany, France, Singapore, Spain, Switzerland, Australia, China and Hong Kong.
“We predict that private investors will continue to take global market share as both the number of wealthy individuals and their assets grow,” Anthony Duggan, head of capital markets research at Knight Frank says.
A third of ultra high net worth individuals will invest in cross-border real estate deals in the next two years, he predicted.
While the drivers behind the real estate purchases vary greatly depending on the motivations of the individual, there are a number of investment themes which Knight Frank identifies.
Risk mitigation, especially political and economic, will continue to be high on investors’ agendas in 2017. Individuals are looking to diversify at both a portfolio and geographical level. Real estate provides the ability to achieve targeted investment decisions in terms of location, sector and tenant components as well as provide regular income and an underlying asset with residual value.
As for control, one of the consequences of the global financial crisis was that many investors looked for more control over their assets. Real estate, with its direct ownership structure, diversity of lot sizes and choice of asset management approaches is attractive to those not wanting to pass decision making to third-parties or to be constrained by the closed-end fund model of transacting at specific times plus the need to reach an alignment of views between the investors.
Currency diversification is also important. While foreign exchange returns are not generally a driver for property investment, currency movements and capital controls have, in some instances, been a trigger for investors looking to externalise capital from locations implicated.
Finally, when it comes to portfolio globalisation, many UHNWIs have, either directly or indirectly allocated part of their asset portfolio to real estate and, as they accrue more wealth, they increasingly become fully exposed to their domestic market and look to new markets to diversify their portfolios.
Portfolio Management: UHNWI asset allocations
|Primary residence, 2nd homes
Source: The Wealth Report Attitudes Survey