The next chapter
This year will see the long-awaited downward pivot in interest rates. While cuts are on the horizon, rates will remain above their recent ultra-low levels. This, together with increasingly complex geopolitics, tech and climate disruption means that for real estate investors, the old rulebook no longer applies. As we explore throughout this year’s report, it’s time to turn to the Next Chapter.
Wealth creation returned
That shift in outlook for interest rates, the robust performance of the US economy and a sharp uptick in equity markets helped wealth creation globally. At the end of 2023 there were 4.2% more UHNWIs than a year earlier, with nearly 70 very wealthy investors minted every day, taking the global total to just over 626,600. Growth was led by North America (up 7.2%) and the Middle East (6.2%), with only Latin America seeing its number of wealthy individuals fall. While Europe lagged in terms of new wealth generation, the continent remains home to the wealthiest 1%.
Wealth prospects
Despite slower global growth this year, the revival of wealth creation looks set to remain with us. We confirm our expectation that the number of wealthy individuals globally will
rise by 28.1% during the five years to 2028. Our model points to strong outperformance from Asia, with high growth in India (50%) and the Chinese mainland (47%) in particular.
Generational shifts in wealth
With changing priorities towards investment outcomes between generations, we take a look at the implications for investment behaviour. Attitudes to wealth creation among female Gen Z-ers suggests the 38% rise in female UHNWIs over the past decade is set to keep building.
Cities slug it out
With wealthy individuals better connected and more willing to move than ever before, emerging wealth hubs are responding by dishing out incentives to challenge the supremacy of established global gateways. We report on Paris’s attempts to lure financiers from the City of London, London's own shift to the left, Geneva’s search for something more than stability, how Milan and Miami are feeling the pressures of success, Hong Kong and Singapore’s respective plans to be the home of Asia’s new elite and, finally, how developers in New York and Los Angeles are betting on a branded future.
Residential prices on the up
Despite the sharpest ever uptick in global interest rates we confirm that, while sales volumes took a hit in 2023, capital values continued to grow by 3.1% across the world’s leading prime markets. Asian markets led the charge, followed by those in the Americas. Our analysis confirms where buyers will need to dig deepest (Monaco and Aspen) and which prime markets are offering value right now.
The future of residential
More than a fifth of global UHNWIs are planning a purchase in 2024. Helpfully, we provide our house price forecast for 25 of the most in-demand markets, led by Auckland (+10%) and Mumbai (+5.5%). While the pace of rental growth will slow this year, our prime rent forecast points to some notable outliers, with Sydney leading at 12%. We round up the big themes impacting global markets – with politics replacing inflation as the leading market risk – and outline how AI, wellness and climate concerns will shake up
the luxury development sector.
A slower 2023 for commercial...
It was a challenging 2023 for global commercial real estate (CRE), with investment volumes falling by 46% as investors grappled with elevated interest rates and higher debt costs. Despite a tougher environment, private investors remained the most active global buyers for the third consecutive year, taking a record 49% share of this US$698 billion market, with the living sectors, industrial and logistics, and offices their top picks.
Sets the scene for a recovery
With almost a fifth of UHNWIs planning to invest in CRE this year, we examine where the money is likely to come from (Middle Eastern and Asian investors have the strongest appetite) and where it is likely to be directed, with the living sectors and healthcare leading. To aid investor decision-making, our sector outlook covers English vineyards, much needed lab space, secondary offices in the best locations, and those sectors benefiting from structural tailwinds including “beds, sheds, eds and meds”. Finally, with rates on their way down, we see debt returning to form part of investor strategies.
Sustainable trends in focus
With a 27% chance that 2024 will see the average rise in global temperatures surpass 1.5°C compared with the pre-industrial era, and with the richest 1% of the global population responsible for more emissions than the poorest 66%, it’s good to know that almost two-thirds of UHNWIs are attempting to reduce their carbon footprint. We assess the key sustainability strategies being employed by the world’s wealthy as they assess CRE investment.
AI in reality
The AI investment wave carried the rebound in equities markets last year: is it about to do the same for real estate? We report how record investment in AI-driven tech will impact on demand for specific use types in very targeted locations. Beyond the direct requirements from the technology, we consider how AI is being harnessed to uncover market opportunities at scale, highlighting a project that saw AI identify previously overlooked land capable of accommodating more than 100,000 homes.
Farmland
With farmland forming the biggest investable real estate sector, at least by size, comprising 5 billion hectares, or more than 40% of the globe’s landmass, investors are asking it to deliver ever more. While food production unsurprisingly leads investor objectives, latent environmental benefits are rising in importance, with US$30 billion earmarked by investment funds for climate-related outcomes. Our investigation reveals a sector grappling to place a value on radical new uses.
Luxury collectibles on pause
Despite record-breaking individual sales in 2023, a surge in financial market returns contributed to a shift in allocations impacting on luxury asset value. The Knight Frank Luxury Investment Index fell 1% over the year, pulled down by falling values in rare whisky (-9%), classic cars (-6%), handbags (-4%) and furniture (-2%). While art (+11%), jewelry (+8%) and watches (+5%) helped offset some of these falls, our assessment reveals a need for an ever more discerning approach from investors, with significant volatility by sub-market.
