Wealth drops for the rich but opportunities ahead

UK-based global real estate company Frank Knight’s 2023 Wealth Report shows the wealth held by ultra-high-net worth individuals (UHNWIs) around the globe dropped by US$10.1 trillion last year.

The wealth drop sprang from a triumvirate of shocks – energy, economic and geopolitical. Exchange rates also had a significant impact.

A third of UHNWIs total wealth is in residential property, just over a quarter in equities and 21% in commercial property.

A UHNWI is someone with a net worth of US$30 million or more, including their primary residence.

Although wealth increased for four in 10 last year, the overwhelming trend was negative.

Knight Frank’s tracker indicates wealth held by UHNWIs fell globally by 10% in US dollar terms. That encompasses the change in residential property values, commercial property values, fixed income, investments of passion – art, cars, wine - and other assets.

Last year on average total wealth was allocated to: primary and secondary homes 32%; investable wealth - equities 26%; ownership of commercial property 21%; bonds 17%; private equity/venture capital 9%; commercial property funds 8%; commercial property REITs 5%, other 7%; art, cars, wine 5%; gold 3%; crypto assets 2%.

The global real estate company says the fall in wealth is unsurprising given the dramatic pivot in monetary policy that culminated in the worst performance for the traditional blended portfolio since the 1930s. 

Europe had the largest decline in wealth with a drop of 17%, followed by Australasia with 11% and the Americas by 10%. Africa and Asia by comparison had the smallest declines with 5% and 7% respectively.

Capital appreciation

Just under a third of UHNWI respondents say their main goal is capital appreciation, while around a quarter are targeting preservation.

The picture is nuanced globally, with HNWIs across Asia-Pacific looking for growth, while preservation is the number one goal in Europe and America – perhaps unsurprising, given the economic slowdown under way across Europe and the anticipated downturn in the US as higher interest rates take their toll.

Almost half of UHNWIs are wanting to increase their portfolio in this year.

Real estate is cited as a top opportunity, and property holdings are likely to increase. Whether for the perceived inflation hedge, diversification benefits, or as a boon in times of uncertainty, a third of HNWIs are looking to increase their residential holdings, while 28% will seek to increase their commercial property holdings.

Private investors were the most active buyers in global commercial real estate markets in last year with US$455 billion invested, accounting for 41% of the total.

This represents private buyers’ highest share of global commercial real estate investment on record. It’s also the first time private investment has surpassed institutional investment. Institutions invested a total of US$440 billion in 2022, 28% below 2021 volumes, but 2% above the 10-year average.

By comparison, while private investment was down from its all-time high of US$493 billion in 2021, last year was still the strongest year in history sitting 62% above the 10-year average.

In Australasia 24% of UHNWIs are planning to invest directly in commercia property and 18% through funds or REITS.

The best bets

Knight Frank says the best tips for real estate commercial  investment are supermarkets and logistics, especially larger lots with good covenants.

The fundamentals are still strong and tie in with the supply chain for both online and in-person consumers.

Online sales are anticipated to grow by an additional £31 billion by 2026. Over the next five years, this could result in additional demand for roughly 9,200m2 of last-mile fulfilment space.

Then there are the living sectors, which are more defensive. Student housing has favourable demographics, and there is likely to be greater international demand following the lifting of pandemic restrictions stopping students from entering New Zealand.

Other opportunities

Buyers have realised that asset classes like government-leased offices, fast-food outlets and medical centres offer strong income security and benefit from consistent consumer demand.

With economic growth slowing, these types of asset remain in favour due to their defensive nature, and buyers are also anticipating long-term growth underpinned by rising land values.