The new, super-sized, super-prime property market
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
For anybody who deals in numbers, historical comparisons are harder than they used to be.
Take property market transactions. Until the early months of 2020, you could compare any monthly data point to previous years and you'd have a pretty good idea if you were looking at a busy month or not. The pandemic then swept the globe, followed by a once-in-a-generation bout of inflation. Now, what constitutes 'normal' is less clear. Should we compare data to the years before the pandemic, or after?
Opting for the latter comes with the judgment that something has changed permanently since the onset of the pandemic, which feels more ambitious. However, interest rates are falling and the dust is settling on a period of historic volatility. Now feels like the right time to assess what has and hasn't changed - for good.
A super-prime expansion
Global buyers acquired 463 super-prime (US$10m+) homes in the three months to June 2024, marginally down from the 476 sales in the previous quarter, according to our latest Global Super-Prime Intelligence report.
Sales volumes in the top end of the residential sales market have settled at almost two-thirds above their pre-pandemic trend level. This will endure: the legacy of the pandemic has been a step-change in the size of the super-prime market, as activity in markets like Palm Beach, Miami and Dubai in particular surged following a shift in wealth distribution globally. Total annual
sales values at US$33.4 billion contrast with US$20.1 billion in 2019.
Dubai is the standout growth market, with US$10 million+ sales rising from 23 in 2019 to 436 in the most recent 12-month period. Geneva has also seen a surge, with sales increasing from 59 in 2019 to 102 in the most recent period. Palm Beach has gone from 50 to 138, and Miami has experienced a remarkable rise from 41 to 149. While a few markets, such as New York, Singapore, Paris, and Hong Kong, have been less impacted by the recent market growth, some mature markets, like London and Los Angeles, saw sales increase by between 25% and 50% over the period.
The driver of this market growth has been a broader increase in global wealth in recent years. The Wealth Report from Knight Frank confirmed a 19% growth in the number of ultra-high-networth individuals (UHNWIs) globally over the most recent five-year period. The remarkable performance of some US markets and Dubai can be partly attributed to the recent uptick in wealth creation in these regions, with the number of UHNWIs in the US up by 8% in 2023 and by 6.2% across the Middle East.
Lasting impacts
As central banks began hiking rates to combat surging inflation during the early months of 2022, it looked feasible that one of the lasting effects of the pandemic would be improved housing affordability.
The opposite happened. In many wealthy nations, house prices rose or declined only marginally. In the UK, values are only 3% below the all-time high recorded in the summer of 2022. In the US, affordability worsened even before you account for the increase in borrowing costs. The picture in rental markets is particularly worrying.
Dissatisfaction with housing costs is now at a record high across OECD nations, according to Gallup Analytics figures covered by the FT this week. The poll of 37,000 people in 37 countries shows that discontent over housing affordability is highest among under-30s and those aged 30 to 49, but even 44% of over-50s are unhappy.
The issue is at the forefront of the US election and will be for many more political cycles. Borrowing costs are unlikely to fall to the lows we saw after the Global Financial Crisis and house prices are likely to rise modestly in the years ahead. The disruption to construction that started during the pandemic will continue to compound the issue - a separate piece in the FT this morning covers the credit crunch facing US homebuilders. Banks have cut lending for residential construction by more than 10% and show little desire to ease credit conditions.
UK housing supply
Annual results published by housebuilder Barratt Developments this morning give a sense of how tight supply will be as demand picks up through the autumn and beyond.
The company completed 14,004 homes during the year through June, down 18.6% compared to the same period a year earlier. It expects to deliver 13,000 to 13.500 homes during the coming year.
"Whilst demand continues to be sensitive to mortgage affordability, and reduced land buying activity during the past two years has had a near-term impact on the number of outlets we are operating from, we are well-positioned to meet the strong underlying demand for new homes of all tenures in the UK," said CEO David Thomas. "We welcome the Government's proposed reforms of the planning system as one of the key levers to increase housebuilding, drive economic growth and tackle the chronic undersupply of high-quality, sustainable homes."
Leading indicators suggest that purchasing activity will continue to improve through the final months of the year. Mortgage approvals for house purchases data published by the Bank of England on Friday, which is a good indicator of future borrowing, increased to 62,000 in July, up from 60,600 the previous month and the highest since September 2022.
An EPC cliff edge
UK landlords might be unable to let an office without an EPC A or B as soon as 2030. Currently, 70% of commercial property floor space is rated EPC C or below across England & Wales, so the sector faces a substantial challenge.
How should London's office landlords prepare? We find out in a new edition of our Intelligence Talks podcast. Anna Ward is joined by Flora Harley, Knight Frank’s head of ESG research, and Harriet Hicks, ESG consultant. They discuss Knight Frank’s new report on building obsolescence, which covers more than 3,000 commercial properties that have undergone retrofitting leading to an improved EPC rating of at least B.
They also delve into new research on building obsolescence, particularly regulatory, functional, physical, and financial risk, plus practical measures like LED lighting and digital twin modelling for building improvements.
In other news...
UK councils demand extra cash and end of Right to Buy to boost social housing (FT), Angela Rayner may end the right to buy that put her on property ladder (Times), Blackstone agrees €1bn deal for European warehouse assets (FT), John Lewis plans £80m transformation of Reading depot into flats (Times), and finally, luxury downturn leads some Swiss watchmakers to seek state aid (Bloomberg).