Private investors are an increasingly important cog in the global real estate marketplace. As our latest Wealth Report notes, 27% of all global commercial property transactions in 2016 involved a private buyer. And a quarter of private wealth is held in real estate investments of some kind (excluding primary residences and second homes).
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.
Our prediction is that private investors will continue to take global market share as both the number of wealthy individuals and their assets grow.
Countries private property investors are most likely to invest in
1. UK
2. USA
3. Germany
4. France
5. Singapore
6. Spain
7. Switzerland
8. Australia
9. China
10. Hong Kong
Source: The Wealth Report Attitudes Survey
We fully expect that the appetite from private investors for commercial property will continue to increase. Indeed, our Wealth Report research shows that 32% of UHNWIs will invest in cross-border real estate deals in the next two years. While the drivers behind these purchases will vary greatly depending on the motivations of the individual, there are a number of investment themes we are seeing in the market:
Risk mitigation: Risk, 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
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: 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.
These themes, plus individual investor specific drivers, will continue to attract private investors towards global real estate. The top markets targeted will primarily be those exhibiting solid fundamentals including tenant demand, liquidity and transparency; with the Super Cities top of the list. However, increasingly we are advising clients not only on prime office, retail and hotel assets in these cites but also strategic investments in growth sectors such as urban logistics, leisure and specialist operating assets including student housing and multihousing.
Overall, property as an asset class will remain high on the agenda of private investors in 2017.
