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Active private wealth

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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 US$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’s new Pulse Survey captured the views of 500 high-net worth individuals (HNWI) across 10 countries and territories including: Australia, mainland China, France, Hong Kong SAR, Italy, Singapore, Spain, Switzerland, the UK and the US in January 2023.

Knight Frank identifies an HNWI as someone with a net worth of US$1 million or more, including their primary residence.

Its Attitudes Survey is based on responses from November 2022 by 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 UHNWIs (US$30M+ net wealth including primary residence) at 20,874 for Australia and 3,118 for New Zealand.

It further estimated that Australia had 46 billionaires, while New Zealand had just two, with Bayleys national director commercial and industrial, Ryan Johnson saying this latter figure is conservative.

“The NBR list 2022 noted 14 families at NZD$1 billion-plus and seven to eight families at US$1 billion.

“Wealth is a touchy subject, but suffice to say, investor bank Credit Suisse’s Global Wealth Report claimed New Zealand had the biggest jump in average adult wealth of anywhere in the world in 2021.

“Much of that leap could be attributed to equity gains from rapidly rising house prices and an appreciating currency at the time – and we accept that getting an accurate wealth reading for any country must have broad tolerance ranges.”

Johnson says global trends and findings outlined in The Wealth Report are mirrored 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 five 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 says before deploying capital, wealthy private investors, or their advisors, are able to pragmatically block out current market noise, and assess risk and potential liquidity tolerances before making strategic acquisitions through a long-term lens.

And although macroeconomic curve balls meant the majority of UHNWIs and family office entities globally saw their wealth decline last year, with a collective fall of 10 percent, Knight Frank argues that it is now time to “look beyond the crisis”.

It suggests that market sentiment will shift, and quickly, so investors need to be well-placed to take advantage of the very real opportunities emerging in global real estate markets.

Across the Tasman, more than two-thirds of wealthy Australian investors expect growth in their investment portfolios this year with Knight Frank chief executive, James Patterson saying this optimism stems from being more shielded from global economic factors than their offshore counterparts.

On the flip side, Australian UHNWIs were more worried than their global peers about the impact of rising inflation, citing it as the top risk for 2023 followed by interest rates.

Johnson said he’s picking that wealthy New Zealand investors will act as they did during other times of upheaval – like post-global financial crisis (GFC).

“Demonstrated confidence by cash-rich private investors was driven then by asset repricing, perceived value opportunities and optimism that the economy would rebound,” he says.

“We’re seeing similar patterns of investment today spurred on by pricing resets, less competition from listed and institutional buyers who are still trading at deep discounts, and in the case of offshore private capital – currency benefits.

“The all-in cost of debt will be a key consideration for all investors in the year ahead, but as private capital is typically less reliant on debt than other investor segments, we’d expect to see confident buying activity from the private market.

“Opportunity is the crux here, and it will be those who can identify opportunity in volatility, recognise growth fundamentals, and be prepared to optimise pathways to cement future income that will come out on top.”

Johnson added that with global borders now open, and nearly 40 percent of respondents in the Knight Frank’s Pulse Survey considering investing in commercial property outside their country of residence, New Zealand with its safe haven overlay, is well-positioned to benefit from cross-border capital.

“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.”

The family office market has burgeoned in Asia, with Singapore seeing major growth – around 700 at the end of 2022, a seven-fold increase since 2017 – 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 business lines.

“Family offices are multi-generational high net worth structures that use scale of wealth to get into a different investment league.

“These private wealth investment entities look well beyond the retirement or income needs of the core family, and seek to optimise the value of their private estate to grow capital for future generations.

“We’re seeing more of this in New Zealand, with legacy thinking extending to ‘educating’ the next generation on investment strategies and involving them in some decision-making.

“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.

“Industrial property is a clear example of a sector that has boomed and looking at long-term stats, The Wealth Report shows that at a global level, there has been a 117-percent increase in private capital investment in industrial properties in the last 10 years. “Logistics and distribution assets with scale and strong tenant covenants have been in high demand on the back of ecommerce trends and ‘just-in-case’ inventory fundamentals.

“Not only do these types of asset remain in favour due to their defensive nature, buyers also anticipate long-term growth underpinned by rising land values.

“Industrial property – including data centres – along with healthcare, supermarket and large format retail, have proven to be countercyclical and defensive income-producing asset classes and looking ahead, Knight Frank says the prime office sector will lead in pivotal markets like London.”

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