A record year for the private investor
We summarise what this record year means for private investors and what their opportunities are in the commercial real estate sector.
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The investment environment continues to evolve at pace. For the first time on record, private buyers had the largest share of commercial real estate investment in 2022, surpassing institutional investment and accounting for 41% of total investment volumes or US$455 billion invested. We’ve outlined the top headlines from the latest edition of The Wealth Report, our world-renowned publication bringing together expert insights, rich data sources and survey findings representing more than $2.5 trillion of private capital globally.
Private investment is 62% above the 10-year average
Private capital remained active in 2022, despite the wider geopolitical and macroeconomic headwinds. While moderating from an all-time high of US$493 billion in 2021, 2022 was still the second-strongest year in history for private investment.
US$2.5 billion of cross-border private capital invested into London
London was the top city destination for cross-border private capital in 2022. This accounted for 44% of the total private investment into the city and 15% of total global cross-border private investment into global cities in 2022.
Commercial property selected during uncertain times
Private buyers choose commercial property during uncertain times. Following the 2008 financial crash, private buyers globally increased their commercial property investment by 44%, and by 88% in 2021 after the first year of the Covid-19 pandemic. In our Attitudes Survey, 19% of respondents said they intended to invest directly in commercial property in 2023 despite the current economic backdrop.
The office sector continues to dominate
Our Capital Gravity model forecasts 43% of total private cross-border capital will be directed at the office sector this year. We forecast UK offices to be the top target for private investors in 2023, with offices in the US, Germany, Australia and the Netherlands also likely to see strong demand.
Healthcare-related assets top the wish list
For the second year in a row, healthcare-related assets have come out on top. Our Attitudes Survey highlighted that just over a third of respondents globally were looking to invest in healthcare-related assets in 2023. The results also indicated strong demand for the private rented sector, leisure, hotels, student accommodation, life sciences and data centres.
High-value assets will be on the agenda
Our HNW Pulse Survey found that of those looking to invest, close to 10% are looking to complete a transaction of US$20 million or more in 2023. This figure jumps to 20% for investors from the Chinese mainland and 14% for investors from both Singapore and Spain.
US$2M-17M investment for offices in the UK
Private buyers typically look to invest US$2M-17M when purchasing offices in the UK. According to our experts, this could purchase assets of c.15,000 sq ft of space, depending on the area. Meanwhile, private buyers targeting hotels and leisure typically spend US$2 million to US$40 million.
Private investors well positioned in 2023
Private buyers are particularly well-positioned in 2023 due to their lower reliance on debt. At a time of multi-year high-interest rates, many debt-backed investors are facing higher refinancing costs. With global commercial property investment 31% above the long-term average in 2018, this is particularly pertinent this year as these loans reach maturity, assuming a five-year loan term.
Environmental consideration impacting investment
78% of HNW Pulse Survey respondents said that environmental considerations impact their investment decisions, with 46% stating it impacts ‘to some extent’, and 31% stating it impacted decision-making to a ‘significant extent’.
Multiple home-owners expanding portfolios
According to our Attitudes Survey, UHNWIs owned 3.7 homes on average globally in 2022, up from 2.9 the year prior. In locations where UHNWIs own residential property, they may be more likely to invest in commercial property to expand and diversify their portfolios.
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Private investors and private capital refer to investment from family office, private individuals and privately held companies.
HNW PULSE SURVEY: The new Knight Frank HNW Pulse Survey encapsulates the views of 500 HNWIs across 10 countries and territories including: Australia, Chinese mainland, France, Hong Kong SAR, Italy, Singapore, Spain, Switzerland, the UK and the US. Conducted in January 2023.
THE ATTITUDES SURVEY: The 2023 instalment is based on responses provided during 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 UHNWI clients.