Knight Frank’s 2023 Wealth Report provides a comprehensive overview of the global economic landscape and its impact on the ultra-high-net-worth individuals (net worth of US$30 million or more) and the real estate market. Here are some key insights from the 17th edition, offering valuable perspectives on the evolving wealth dynamics.
A Historic Shock and the “Permacrisis”
The report highlights the historic shock caused by the Ukraine crisis, which fueled the European energy crunch and led to soaring inflation. This resulted in one of the sharpest movements in global interest rates in history, creating what has been termed the “permacrisis”. Global economic conditions remain uncertain, with inflation above target, rising interest rates, and a significant cost-of-living crisis for consumers.
Looking Beyond the “Permacrisis”
Despite the persisting risks, the report urges investors to look beyond the permacrisis. Anticipating an upcoming interest rate pivot, market sentiment is expected to shift rapidly. Investors are advised to position themselves strategically to seize emerging opportunities across global real estate markets.
Key Findings
Wealth Creation in Transition
The report reveals that in 2022, challenging markets led to a 10% decline in the collective wealth of Ultra High Net Worth Individuals (UHNWIs), amounting to a staggering US$10.1 trillion. Europe, the epicenter of the crisis, experienced an average 17% decline, while Africa demonstrated remarkable resilience with only a 5% drop. However, a sharp reversal is anticipated, with 69% of wealthy investors expecting growth in their portfolios this year. This newfound confidence is driven by asset repricing, perceived value opportunities, and an expected economic rebound.
Changing Investment Strategies
With the wealth rebound, investors are set to employ their resources strategically. 31% of respondents plan to target capital growth, while 26% prioritize capital preservation, and 23% focus on income generation. Property investments are poised to play a crucial role, with almost a third of investors considering them as an inflation hedge and diversification tool. However, a prudent approach will see 29% of investors reducing debt volumes.
Private Capital Takes the Lead
Private capital demonstrated resilience amidst uncertainty, falling only 8% compared to the 28% reduction in institutional real estate investment in 2022. It accounted for a record 41% of the US$1.1 trillion committed by all investors. Residential properties dominated private investments, comprising 43%, followed by offices (18%) and logistics (15%). London claimed the largest share (15%) of cross-border investment, closely followed by Singapore.
Prime Residential Growth Remains Positive
The Prime International Residential Index (PIRI 100) indicates a 5.2% growth in average luxury house prices in 2022. While this represents a slowdown, it still marks the second-strongest year on record. Dubai (44%) and Aspen (28%) led the growth, while markets that thrived during the Covid-19 pandemic, like Wellington (-24%) and Auckland (-19%), saw significant reversals.
Resort Markets Thrive
Resort markets in both sun and ski destinations outperformed average prime market growth in 2022, with growth rates of 8.4% and 8.3% respectively. This trend is bolstered by the diverse nationalities of buyers in markets like France, Spain, and Italy.
Super-Prime Market Remains Strong
The super-prime (US$10 million+) market experienced a slight dip in sales in 2022 compared to 2021, but it remained 49% higher than in 2019. New York, Los Angeles, and London were the leading cities in terms of sales. The ultra-prime (US$25 million+) market was predominantly led by London and New York, with London experiencing its highest sales since 2014.
Wealth and Talent Mobilization
The report highlights a surge in the desire for mobility among UHNWIs, with 13% planning to acquire a second passport or citizenship. This mobility trend, including the rise of digital nomads, is poised to disrupt outbound countries, destination markets, tax systems, and real estate demands.
Conclusion
Knight Frank’s 2023 Wealth Report provides a detailed analysis of the evolving global wealth landscape. Despite existing challenges, the report encourages investors to capitalize on emerging opportunities in real estate markets worldwide. As wealth and talent continue to shift, governments are implementing strategies to attract and retain affluent individuals, making this a transformative period for global economies. The report also delves into diverse investment trends, including the resurgence of art and classic cars as luxury collectibles, reflecting the dynamic nature of the wealth landscape in 2023.
Read the full report here
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