BY Zoe Phoon
Trends of the decade in Knight Frank’s The Wealth Report 2016 show that ten years ago, ultra high net worth individual (UHNWI) investors looked to trusted Central London office locations particularly Mayfair, High Street Kensington and core City.
The more adventurous ventured into Soho or Covent Garden. Investments would often be freehold with a ten-year plus lease and no more than two tenants.
Today, multi-let properties with well-timed lease expiries and rent reviews are favoured. New areas include the City fringe, Farringdon, Clerkenwell, Bloomsbury (all benefiting from Crossrail) and Paddington.
The report provides a perspective on the interaction between wealth and the world’s prime property markets.
Knight Frank’s capital markets experts look at key trends of the past decade and future opportunities for private investors. Their focus is on commercial properties in global markets.
According to the report, the Asia Pacific region, as the past decade’s growth engine of the world economy, has seen a number of significant trends.
The most notable has been the expansion of interest in commercial property from a swelling population of wealthy individuals.
Private capital from Hong Kong, Singapore, India, Malaysia and China bought in key markets like the United Kingdom, Australia and the United States.
Domestically, numerous tiers of private capital were attracted to opportunities in local commercial markets, often spurred by the cooling measures placed on the region’s residential markets.
On future opportunities, the report says assets in the key Western markets will continue to be targeted by Asian private investment.
At the same time, a slow maturing of domestic markets and the growth of different methods of investing, from real estate investment trusts or REITs in India and China to syndicated/club-type deals, will increase UHNWI exposure to the commercial real estate market.
Asset classes showing growth prospects in locations that provide transparency, wealth preservation, liquidity and security will be most in demand.
As a credible investment class from a global standpoint, the technology sector has been the most significant force in the emergence of commercial real estate in leading cities, the report notes.
Besides India’s Mumbai, which has a diversified occupier base, other cities like Delhi and Bengaluru have been prime beneficiaries of this tech boom.
India is attracting global investors like Blackstone while Indian investors are diversifying globally into development and core assets in gateway cities like London.
The “Modi effect” has been crucial in both the import and export of capital, the report says.
On future opportunities, it discerns technology is now one of the core differentiators for many businesses across all sectors.
Such dynamics will benefit cities with the right combination of technology talent, affordable real estate, superior infrastructure and a vibrant living environment.
Bengaluru, for example, will benefit from the transformation. From 2013 to 2015, the technology sector contributed 58 per cent to the city’s total office demand of 26 million sq ft.
On Hong Kong/Mainland China, the report says Chinese institutional investors have dominated the market in the past.
Now, a new wave of Chinese investors is venturing offshore.
Private UHNWIs (typically developers and industrialists) have been making quite a stir.
Unlike earlier investments by Chinese institutions focusing on trophy assets, these new investors dominate small to mid-cap private investments in primary and secondary locations.
The US and Western Europe are key targets.
Going forward, the report says the US remains the standout location for UHNWIs but Hong Kong, being closer to home, is also an attractive location for them to invest in commercial property in decentralised locations.
Meanwhile, yield compression in London will make the UK’s provincial cities more attractive.
On Australia, the report notes that its investment market ten years ago was dominated by local buyers. In recent years, Asia-based investors have been the most active buyers with those from Singapore, Kuala Lumpur, Hong Kong and China leading the charge.
Location-wise, exceptional buying opportunities are seen in counter-cyclical markets like Perth and Canberra while secondary stock has excellent fundamentals in the Sydney CBD and metropolitan markets.
Adelaide’s generous yields and stable markets are also attracting investors.
Brisbane, a market affected by the slump in the resource and commodities sector, is generally considered at, or near, the bottom, with an increase in buyer activity, the report adds.
Zoe Phoon is a freelance business and lifestyle writer. She can be reached at [email protected]