The Wealth Report Methodologies

Knight Frank Wealth Sizing Model

Taking established wealth estimation models (Davies et al. (2017) as our starting point, we have estimated levels of net wealth on a location-by-location basis using balance sheet data, where available, on households’ financial and non-financial wealth. Where data was not available, estimates were generated using econometric techniques. Utilising estimated Gini coefficients, we then drew the wealth distribution curve for each location, calibrating this with our own data as well as other industry standard sources.

This allows us to estimate the number of individuals in each location in the following wealth bands:

• HNWIs – those with net wealth of US$1 million or more

• UHNWIs – those with net wealth of US$30 million or more, and

• Billionaires – those with net wealth of US$1 billion or more.

When talking about net wealth, we now include primary residences and second homes not owned primarily as investments, as this gives a more accurate representation of total wealth. Individuals pass wealth on via the places they live and borrow against them to fund their investments. In addition, when house prices are rising consumers can experience a positive wealth effect, supporting higher levels of consumption, and – of course – vice versa.

We then forecast using a number of metrics including GDP per capita, life expectancy, government consumption and political risk, as these are proven significant variables for such calculations.

Knight Frank City Wealth Index

The City Wealth Index has existed in some guise since 2009 although it has evolved in its current form since 2017. It is designed to assess where the wealthy live, invest and spend time. To do so we collate a number of different datasets. Our Wealth Sizing Model is used to assess the number of HNWI and UHNWI who call each city home.

We then look at a number of investment factors – the level of private capital invested each year in the cities’ commercial property, how many nationalities invest and how many global firms are headquartered there.

With lifestyle a key indicator on where the wealthy spend time, we include a number of these. As education is a key driver in decisions the number and quality of highly ranked universities is included. Connectivity is often at the forefront and important to global UHNWIs and therefore we include the number of worldwide destinations accessible from primary airports. The final factor includes luxury establishments by way of the number of Michelin Stars, five-star hotels and high-end retail boutiques.

These combined factors are assessed on an annual basis to demonstrate the UHNWI cities of choice in any given year.

Prime International Residential Index (PIRI 100)

The Knight Frank Prime International Residential Index (PIRI 100), established in 2008, acts as a benchmark for prime residential prices globally, across both cities and second home markets. Most locations adopt a repeat valuation methodology.

The valuations are undertaken by Knight Frank’s International Sales team and quality control is undertaken by the Knight Frank Residential Research department.

The office ‘baskets’ are reviewed annually to ensure they represent the composition of prime market stock in each market area.

• Geographical location

• Price band

• Bedroom numbers/Property size

• Property type

• New-build or re-sales

Each Knight Frank office has an allocated basket of properties. They are properties that Knight Frank has in-depth knowledge of, either through a market appraisal, an instruction to sell or a completed sale.

These properties are valued annually and the percentage change in their current value against their previous value is calculated. The overall change in the level of the index is calculated as a mean average of the change in value of all the properties within the index.

Knight Frank Luxury Investment Index (KFLII)

The Knight Frank Luxury Investment Index (KFLII) was first introduced in the 2013 edition of The Wealth Report in response to the growing reader interest in the investment value of luxury collectables.

Using data from third-party experts, it tracks the performance of a range of investments of passion. A weighted average is then used to create our overall index. KFLII currently tracks 10 asset classes – art, classic cars, coins, coloured diamonds, furniture, handbags, jewellery, watches, wine and whisky – using data from AMR, Fancy Color Research Foundation, HAGI, Rare Whisky 101 and Wine Owners.

The performance of each asset class is tracked in various ways, either based on auction results, trading platform data, a combination of auction and private sales or by using a “basket of goods” revaluation method. It is not intended as an investment guide.