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The Wealth Report 2020part 10
The Wealth Report 2020part 10
commercial property broke through the fund and handing them US$200 million,
US$300 billion barrier for the first time in investors are saying ‘we can own and number of UHNWIs
2017, it marked the beginning of a new manage these things ourselves’,” says
are building family
era in UHNWI investing. Anthony Duggan, Chief Strategy Officer &
The 2018 edition of The Wealth Report Head of Global Capital Markets Research offices with sufficient
hailed the “Goldilocks” economic conditions at Knight Frank. “Private wealth tends to
firepower to dwarf that
– not too hot, not too cold – that had be quite entrepreneurial, and real estate
powered global markets and enabled a gives UHNWIs that opportunity through of their institutional
remarkable 10% annual rise in the ultra- asset management and repositioning –
wealthy population. This growing cohort you have to be a really clever stock picker.” competitors
seeking to diversify often new-found The movement extends beyond direct in-
riches wanted a slice of the yield premium vesting through family offices, however.
for illiquidity that can make commercial The wealthy are putting far more resource
real estate so attractive. into property funds, whether directly or
But while those perfect conditions may indirectly, says Mr Duggan, while also
be a thing of the past, demand continues funding property companies, and putting
to grow. Private investment in commercial more money into private equity funds.
real estate climbed to US$333 billion in Respondents to The Wealth Report Atti-
the 12 months through Q4 2019, according tudes Survey said that 28% of their
to RCA data, even as the shadow of global clients’ funds were allocated to property as
N
Doing their The people behind the money are chang-
ing, too. Wealth managers surveyed for the
Attitudes Survey said more than one-tenth
V
E
Homework of their clients were millennials, of whom
over 60% were self-made to some degree,
with more than a fifth totally self-made.
S Some 66% of respondents had seen their
As property continues to rise up the investment agenda of
clients’ total wealth increase in 2019 and
T private individuals and family offices, Knight Frank’s global
59% said they expected it to grow further in
team of commercial real estate experts highlight the latest
I 2020. A net balance of respondents – +20%
trends canny investors should look out for
– said they were planning to increase their
N
allocations to property in the near future.
G W O R D S — PAT R I C K G O W E R Against this fast-changing backdrop,
The Wealth Report has picked four themes
likely to dominate the private investment
world of commercial real estate over the
coming three to five years.
economic slowdown, trade wars and geo- an investment, outstripping equities (23%)
political upheaval in various forms looms. or fixed income (17%). The “institutionalisation”
As a result, methods of investing are Private capital favoured purpose-built of the family office
growing more sophisticated. An increasing residential accommodation in the 12 International institutions bidding
number of UHNWIs, many of whom found months through Q4 2019, investing US$122 for London trophy properties against
themselves involved in structures and billion in the sector. This was followed Amancio Ortega’s Pontegadea have
funds they couldn’t extract themselves by offices, with a total of US$85 billion become accustomed to losing out. The
from during the global financial crisis, invested. Global industrial investment founder of retailer Inditex acquired the
are building family offices with sufficient reached US$42 billion and is now clos- London HQ of McKinsey in December,
firepower to dwarf that of their insti- ing in on retail ($US45 billion), reflecting a year after buying the Art Deco Adelphi
tutional competitors. broader shifts in online shopping. building overlooking the Thames.
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across asset classes in different loca-
tions, notably Adelaide or Manchester,” Real estate Top 10 destinations for private capital
2019
G try-wide themes,” says James Lewis, form investment clubs,” says Anthony Offices $85bn
Retail $45bn
Managing Director, Knight Frank Middle Havelock, Head of Agency at Knight
Industrial/logistics $42bn
East. For Middle Eastern investors, “this Frank Kenya. “This has increased bid- 7 Australia
Hotels $28bn $1.6bn $5.6bn
was initially driven by a search for yield ding activity for larger assets.” Senior housing/care $9bn
Pontegadea is perhaps the best-known – as gateway cities including London, Middle Eastern investors seeking Residential condos $3bn
of a new breed of family office that look Paris and Frankfurt became very expen- access to European markets are follow-
8 Sweden
increasingly like the institutions they sive, people started looking at second-tier ing suit, particularly while interest rates <$0.1bn $6.4bn
are in many cases displacing. In the cities, notably in the UK and Germany, remain low, says Mr Lewis. “We’ve seen Countries that saw the highest growth in cross-border
investment from each region
past 12 months, we’ve seen “staff join- such as Leeds and Nuremberg.” these groups investing outside main cit-
Region Recipient
ing family offices from leading global Across Asia-Pacific, investors are fol- ies, into business parks where they can 9 Hong Kong
$0.1bn $5.3bn
Europe Croatia +312%
private equity investors and they’ve lowing suit, though with current market leverage cash yields of 7%– 8%.”
North America Sweden +947%
become much more competitive,” says risks it tends to be those with overseas Family offices have been popular among
Asia-Pacific Czech Republic +1,509%
Alex James, Head of Private Client experience that are willing to push be- Asian investors for years but now smaller 10 China
$0.5bn $4.6bn
Commercial Advisory at Knight Frank’s yond safe haven markets. buyers are increasingly clubbing togeth-
* Numbers are provisional
Private Office. “If you want to compete “Investors with experience, particular- er. “It’s about diversifying the risks, and ** Users of commercial property for specific purposes; business users, government,
globally for major real estate assets, you ly out of Singapore, are happy investing sharing the expertise,” says Mr Brookes. educational or religious institutions who own real estate for their own use Source: RCA
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That interest is in turn reflected in Attitudes Survey. “Recently we have seen smaller to medium-sized units in the city less investment coming into the residential players will continue to own and operate
From student
investment levels: private investment rose private wealth from Singapore looking at centre, as well as well-connected locations market by parents looking to send their these assets, others will certainly look at
accommodation to by 30% in the four years to 2019, according global multifamily or PRS assets, while in the south east and south west of the city, children to Australia to study, and a disposals which will create opportunities
to RCA, taking total global investment last investment is coming from the Middle East given the high demand and lack of supply.” resulting rise in the demand for PBSA.” for buyers in 2020.”
residential care homes,
year to US$110 billion. into the UK and the US,” Mr Mannix says. PBSA is a more established market, ac-
investing in the places James Mannix, Head of Residential Looking ahead, here are five areas that counting for around 31% of the city’s beds. Dublin, Ireland London, UK
Investment and Development at Knight Knight Frank’s global investment experts However, some of this stock is growing old, Strong economic growth and high levels of While new development has been con-
people call home is
Frank, says: “Investors are looking for believe offer significant opportunities. and planning regulations for new stock are employment, combined with a population strained by planning considerations, the
a growing phenomenon. assets that provide an income in a world favourable. Mr White says: “A surge in do- boom and increased levels of urbanisation, number of students coming to study in
where interest rates and bond yields are Madrid, Spain mestic students and continued growth of have underpinned growth in demand for the capital continues to rise, creating op-
We analyse the global
low or negative. This sector, where Population growth coupled with high international students has resulted in a dy- housing in the Irish capital. portunities for investors in PBSA. James
market and highlight five performance is tied to fundamentals such levels of urbanisation have driven housing namic market and an extended cycle with- Demand for flexibility of tenure, as well Pullan, Head of Student Property at Knight
as education, rising employment and demand in the Spanish capital over the last in this asset class.” as affordability constraints, have led to Frank, says: “Investment continues to flow
opportunities of growing
the ageing population, provides an decade. This comes amid rapid expansion
interest to private investors Florida, US
The US has a well-established senior living
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concerns. Over the course of the next will offer direct access to green spac-
decade, these will be subject to two pri- es; to fresh air through the provision of
mary influences – wellbeing and sus- winter gardens and terrace spaces; to Best-in-class performance
tainability. As more socially responsible sanctuary spaces, such as contemplation through energy efficiency
forms of investment emerge in light of rooms, where workers can disconnect and sustainability
the growing climate crisis, and as busi- from the grid, focus or reconnect with
nesses necessarily take a more pro- themselves; and to educational events Amid the growing climate crisis and
active and wide-ranging role in the programmes that seek to promote better increasing concern about the envi-
welfare of their staff, new criteria will life and working styles. ronment, the impact of real estate
determine best-in-class real estate for Over the past year I have presented must be carefully managed and miti-
both investor and occupier alike. our latest findings on this growing trend gated. Thanks to a combination of
to audiences in a dozen countries and it tighter legislation, compliance re-
has been fascinating to see the different quirements and evolving public and
reactions. Countries such as Austral- corporate expectations, businesses
ia and India are at the vanguard of best are realising that embracing the tran-
practice: indeed, my colleagues in India sition to a low carbon economy is not
Best-in-class performance
are already working closely with the just a question of corporate social
through wellbeing
International WELL Building Institute responsibility, it also makes good
The most obvious strategic business
to support the development of buildings business sense.
agenda item that real estate supports is
that help users thrive and flourish. In June 2019 the UK became the
talent management. Global office mar-
Once seen as the domain of the first major economy to pass a net zero
kets have seen a clear flight to quality,
individual, employers are increasingly emissions law, committing to elimi-
driven by occupiers seeking to attract
concerned with – and ready to take nating greenhouse gas emissions by
and retain staff. This may be an obvious
responsibility for – employee wellbeing. 2050. To put this into perspective for
move at a time when labour markets are
property owners and managers, this
tight and labour replacement costs so
will mean ensuring that buildings
high. Best-in-class working environ-
I and portfolios are compliant over the
ments are a key tool in corporate talent Real estate is
course of the next two major refur-
N management strategies, and in keeping
a strategic device, bishment cycles.
that talent healthy and productive.
V The built environment is key to
One notable aspect of this has been the capable of
the UK’s drive for energy efficiency,
E focus on offices rich in amenities that sup-
supporting business accounting for up to 45% of total car-
port staff wellbeing, including improved
S bon emissions (27% from domestic
indoor air quality, circadian lighting, transformation –
buildings and 18% from non-domes-
T healthy food and beverage offers, gyms
and making the tic). Furthermore, between 80% and
and fitness classes, cycle storage and
I 90% of the UK’s existing building
maintenance services, and end-of-trip difference between
stock will still be in use in 2050, re-
N facilities that would grace a high-end spa.
winning and losing sulting in considerable focus on
The office environment has increas-
G improving the energy efficiency of
ingly been mobilised to support the
existing buildings. Again, this has
physical wellbeing of those that use it,
As commercial real estate markets For the investor, the very basis of real This is not philanthropic: it is an commercial logic for the investor
Repurposing undergo significant structural change, estate as an asset class is being recon-
but there is another wellbeing frontier
that best-in-class (and hence investable)
effective way of reducing the financial and underpins future performance.
the rationale for occupying or investing sidered. Increasing lease flexibility has and operational burden caused by Indeed, recent research from Radius
Real Estate is being reconstructed and traditional ensured that commercial property is
office buildings will need to address go-
ing forward: mental wellbeing. Recent
absenteeism or high staff turnover. The Data Exchange identified a stepped
behaviours challenged. no longer simply a long-term income office will be the main stage on which “premium” – estimated at a 14.3%
estimates suggest that depression and
For the occupier, real estate is no play. Recognition of the occupier’s stra- these interventions play out. Offices jump in average rental rates – for
C O M M E N TA R Y – D R L E E E L L I O T T anxiety alone cost the global economy
longer simply a factor of production, tegic intentions repositions them as a with a range of wellbeing-focused London offices offering superior
an estimated US$1 trillion a year in lost
Occupational wellbeing a container in which to house staff customer demanding more from a land- amenities will be in greatest demand energy performance.
productivity. One in four of us is likely
and social responsibility are or a cost to be managed downwards. lord who, in turn, must now embrace by occupiers, and subsequently will be
to experience mental illness during our
adding new dimensions to the Rather, it is a strategic device capable active asset management and think be- the ones to capture the attention of real David Goatman,
working careers and that figure is rising
commercial property market. of supporting business transforma- yond the mere physical supply of space. estate investors. Head of Sustainability & Energy
as work becomes ever more demanding.
Occupiers, developers, tion and – increasingly – one that can The future actions of both occupiers Consultancy, Knight Frank
This frontier will feature heavily in the
investors and landlords, make the difference between a business and investors will also be shaped, of TURN TO P54 TO SEE HOW WELLBEING
best office buildings of the future. They
take note winning or losing. course, by wider strategic and societal IS AFFECTING RESIDENTIAL PR OPERT Y
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