Ricky Poonia, Head of Real Estate at The Blackmore Group, explains why the UK is the top pick for wealthy individual global real estate investors…
Increasingly, the UK is coming up in reports as the number one pick for wealthy real estate investors. More private individual investors are seeing real estate in the UK as a valuable asset. According to a recent report from Knight Frank, private investors are becoming an important movement in the commercial real estate marketplace.
Figures show that 27% of global property transactions within the commercial sector were made by private buyers. Furthermore, 25% of private wealth is invested in real estate, not including primary and secondary residences.
Almost a quarter of high value individual investment portfolios are in retail. Anthony Duggan, Head of Capital Markets Research at Knight Frank, says, “We predict that private investors will continue to take global market share as both the number of wealthy individuals and their assets grow.”
I agree, says Ricky: “We are seeing a seismic shift with many offices seeking both wealth generation and preservation looking at the future of the UK economy.”
Investment set to increase
Private investment in commercial real estate in the UK looks set to further increase, with the report demonstrating that 32% of significantly wealthy investors will choose to invest in cross-border deals over the next two years.
In terms of where the ultra-wealthy private investors come from, it appears that Asia is beginning to catch up with the US. By 2026, the difference will shrink to 7,068 (from 27,020) but North America will retain its status of having the highest number of ultra-wealthy private investors.
Drivers behind investment
The drivers behind the increase in investment differ, depending on the individual’s plans but there are some unifying themes in the UK real estate market.
Political and economic risk will continue, following the start of the uncertain Brexit negotiations and the results of the snap General Election. This risk continues to drive portfolio diversification for wealthy investors. They are looking to diversify not only their asset classes, but also geographically.
Real estate gives this flexibility and ability to target specific investment decisions based on location, the types of tenants and the sector.
More control over assets
The global financial crisis has meant that investors want more control over their assets. As real estate investment has its specific ownership structure, choice of asset management processes and a wide range of unit sizes, it’s a draw for people wanting to retain this control.
Increasingly, wealthy individual investors are choosing prime office units, hotel and retail assets as well as making strategic investment in fast growing sectors, including leisure and urban logistics.
Strong fundamentals in UK market
As the ultra-high net worth individual investor continues to make waves within the global commercial property market, the UK is clearly at the top. Private property investors are drawn to the UK due to the historical strength of the economy, transparency and liquidity of the market.
Investors can choose their asset class, tenants, the location and how they want to manage their property portfolio. The enduring and increasing appeal of the UK to commercial property investors is shown in recent figures revealing that £4 billion of property investment was upheld by Asia-Pacific private investors during the first half of 2017.
Investors from this region account for more than 45% of commercial property investment during this period. The figures from research published by real estate agents Cushman & Wakefield show the highest level of investment in London for five years.
Significant investments in 2017
Some of the most significant investments include the acquisition of the Leadenhall Building (known as the ‘Cheesegrater’) by CC Land. The Hong Kong based firm bought it for £1.15 billion, as well as number One Kingdom Street for £300 million.
Other major investments by organisations from Asia Pacific include 67 Lombard Street (£129 million) by Ho Bee Land, based in Singapore and 20 Gresham Street (£315 million) by China Resources Ltd. All in all, investment in the first half of 2017 was up 18.5% year on year, settling at £8.8 billion compared with the £7.45 billion during the same time last year.
European investment still increasing
As well as these major investors from Asia, wealthy individual investment from individuals from Europe is continuing, despite Brexit. This is led by investment from Germany, with four out of the seven deals made in the first half of 2017 that were over £200 million made by German investors.
A report from Ernst & Young backs up the assertion that the UK is still the top pick for European investors. There have been 1,144 direct investment projects in 2017, more than any other country in Europe.