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World’s wealthy target commercial real estate as global economy shifts

Private investors remained the most active buyers in global commercial real estate in 2023 for the third consecutive year, according to the latest issue of The Wealth Report from Bayleys’ global partner Knight Frank. 

Private capital invested US$338 billion globally, equating to a 49-percent share of total investment, slightly up on 48 percent in 2022 and the highest share on record. 

By comparison, global commercial real estate investment fell by 46 percent in 2023 to US$698 billion as investors grappled with elevated interest rates and higher debt costs.  

Bayleys senior director capital markets, Jason Seymour says New Zealand has seen similar trends for commercial real estate sales over NZ$20 million where between 2018 and 2023, private investors were responsible for between 41 percent and 48 percent of all sales by number of transactions and 24 percent and 41 percent by value.   

“Private investors were particularly active immediately post-COVID accounting for over 41 percent of the total transaction value in 2021, falling to a low point of 23.37 percent in 2022 and rising strongly to 34.8 percent in 2023 as institutional and syndicate buyers reduced their participation in the market,” Seymour says. 

In 2023, private wealth accounted for more than $430 million across 14 transactions of $20 million-plus. In a reflection of wider market trends, the 2023 figure was down 16 percent on 2022, which saw approximately $513 million transacted across 15 deals.  

Knight Frank private office head of private client advisory - commercial, Alex James says the levels of activity from private investors in the global market is unsurprising. 

“This group is relatively well positioned to transact in a higher interest rate environment, as private capital is typically less reliant on debt than other investors.” 

The Wealth Report also found the number of ultra-high-net-worth-individuals (UHNWI) globally grew last year, with many of those maintaining an interest in real estate opportunities. Knight Frank identifies UHNWIs as people with US$30 million net wealth including their primary residence. 

At the end of 2023, there were 4.2 percent more UHNWIs than the previous year, taking the global total to just over 626,600, the report says. 

Knight Frank global head of research, Liam Bailey says a number of factors have contributed to the rise of UHNWIs. 

“The improving interest rate outlook, the robust performance of the US economy and a sharp uptick in equity markets helped wealth creation globally. 

“The expanding cohort of wealthy individuals looks favourably on real estate. Almost a fifth (19 percent) of UHNWIs plan to invest in commercial real estate this year, while more than a fifth (22 percent) are planning to buy residential. Growth over the forecast period provides various opportunities for investors, particularly developers able to deliver a property that suits the shifting tastes of the newly minted." 

Industrial and logistics were the most invested sector for the first time on record in 2023, taking a quarter of all global investment at US$174 billion. While industrial and logistics, retail, hotel and senior housing and care, all increased their share of total investment in 2023, the office market fell from 25 percent in 2022 to 22 percent in 2023. 

The report also predicts a changing of the guard over the next 20 years as wealth is passed to younger generations.   

“The transfer is happening amid seismic changes in how wealth is put to use. The difference in outlook between younger and older generations will result in a substantial reappraisal of marketing strategies for anyone wanting to sell products or services to this newly wealthy group,” The Wealth Report states. 

It shows that environmental concerns will continue to influence investment decisions, with climate change an area with a clear generational difference in priorities.

Seymour says similar trends are likely to emerge in New Zealand as technology presents the same opportunities and drives the same responses in our younger generations. 

It reports that when it comes to cutting consumption, 80 percent of male and 79 percent of female millennial respondents say they are trying to shrink their carbon footprints. Male baby boomers take a different view with just 59 percent trying to reduce their impact, well below their female peers (67 percent).  

Looking ahead to the next five years, The Wealth Report forecasts the number of wealthy individuals globally is expected to rise by 8.1 percent to 2028. While positive, this rate of expansion is noticeably slower than the 44-percent increase experienced in the five years to 2023. The report points to strong outperformance from Asia, with high growth in India (50 percent), the Chinese mainland (47 percent), Malaysia (35 percent) and Indonesia (34 percent). 

This article first appeared in Bayleys’ Total Property portfolio. Read the full version here. 

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