Private investors were the most active buyers of global commercial real estate in 2022, and for the first time, outpaced institutional investment according to the latest research by Bayleys’ global real estate partner, Knight Frank.
In the 17th edition of its market-leading The Wealth Report, Knight Frank revealed that private wealth accounted for 41 percent of all commercial property investment globally, to the value of $455 billion.
This is private wealth’s highest share of global commercial real estate investment on record and the firm suggests that 2023 will provide a unique opportunity for private clients looking to enter the market, or consolidate in it further, as rising debt costs may lead to greater inventory becoming available and even less institutional activity.
The Wealth Report surveyed 500 high-net worth individuals (HNWI) across 10 countries and territories, along with more than 500 private bankers, wealth advisors, intermediaries and family offices who between them manage over US$2.5 trillion of wealth for ultra-high net worth individual (UHNWI) clients.
Knight Frank estimated the number of UHNW worth individuals (US$30M+ net wealth including primary residence) at 20,874 for Australia and 3,118 for New Zealand.
Quoted in its latest Total Property portfolio, Bayleys’ national director commercial and industrial Ryan Johnson said global private investment trends detailed in The Wealth Report are playing out in New Zealand.
“Whether in a private capacity or through an established family office, high, or UHNWI investors are commanding a growing slice of the prime commercial and industrial property market pie around the country.
“Prime property is defined as the most desirable and most expensive property in a given location, generally in the top 5-percent of each market by value.
“Our data shows that of all commercial and industrial sales over $20 million in New Zealand last year, 47 percent was to private buyers – almost double that of institutional capital and around three times that of the syndicated market.
“Despite economic headwinds, investment by private capital remained robust with proactive investors seeing value and long-run potential in prime commercial and industrial assets.”
Johnson said through its business partnership with Knight Frank, Bayleys’ vendor clients can gain access to wealthy off-shore private investors looking to grow asset bases through prime property acquisition.
“Globally, nearly 40 percent of HNW investors surveyed by Knight Frank are considering investing in commercial property outside their country of residence.
“With our perceived safe haven status, New Zealand is well-positioned to benefit from cross-border capital.
“With borders now open, UHNW investment out of Asia could ramp up again as investors look to diversify portfolios and counter some of the economic headwinds faced by markets like China.”
Since 2017, Singapore has seen a seven-fold increase in the number of family office entities as super-wealthy families rethink how to safeguard and grow wealth for future generations.
Although slower on the uptake here, Johnson says there’s been a rise in New Zealand’s family office investment sector with Bayleys actively working in this space across its service lines.
“These multi-generational high net worth structures use scale of wealth to get into a different investment league, looking well beyond the retirement or income needs of the core family, and seeking to optimise the value of their private estate to grow capital as an enduring family legacy.
“Building relationships with key stakeholders is something that Bayleys, as New Zealand’s largest full-service real estate agency, is superbly positioned to do and we work closely and discreetly with the country’s UHNWI tier of investors and increasingly, are growing our family office involvement.”
Johnson said New Zealand’s wealthiest families all have some exposure to the property market, and most are extending their asset portfolios to leverage gains from demonstrably defensive asset classes.
“We’re seeing similar patterns of investment now as we did post-GFC with wealthy New Zealand private investors spurred on by pricing resets, and less competition currently from listed and institutional buyers who are still trading at deep discounts.
“Bayleys has demonstrated transactional activity at the prime end of the market with cash-rich private investors – both domestic and off-shore – acquiring defensive assets across the industrial, retail, hotel, office and development land sectors.
“While the all-in cost of debt will be a key consideration for all investors in the year ahead, private capital is typically less reliant on debt than other investor segments, so we’d expect to see continued confident buying activity from the private market.”
For the past five years, The Wealth Report has been tracking private investor interest in environmental, social and governance (ESG) principles, with the key driver being future-proofing portfolios.
Latest survey results show that energy and climate-related factors are increasingly being integrated into property acquisition decision-making with carbon emissions the leading environmental investment consideration.
“Just as funds managers are increasingly investing in impact funds, private investors looking at prime assets are factoring environmental and social impacts into their acquisition decisions,” said Johnson.
“While long-run financial returns remain central to most investment decision-making, as ESG corporate reporting becomes more standardised and better understood, we’d expect private wealth investment for ESG-aligned property to increase and to see family wealth being used to drive better societal and environmental outcomes.”