Commercial Property Increasingly Popular for UHNWIs

Commercial Property Increasingly Popular for UHNWIs

A new survey by the real estate business, Savills, has estimated that over half of global property deals are now being funded by private capital. The survey appears to support the trend we reported back in March (see, UHNWIs Target Commercial Property, March 6 2014 in this section) that Ultra High Net Worth Individuals are increasingly challenging private banks and hedge funds when it comes to financing commercial property such as hotels, shops and office blocks.

The report, Around The World In Dollars And Cents, estimated that the total value of the world’s real estate is now around US$180 trillion. Of the US$70 trillion which is considered “investable”, (that is, is traded regularly, which includes US$20 trillion of commercial property) more than 50 per cent is being bought by private individuals, companies and organisations, while institutions are taking a smaller share.

Savills goes on to estimate that around 35 per cent of global deals over US$10 million in 2012 were made possible only because of private funding.

Yolande Barnes, Head of Savills World Research, considers that this is not just a passing fad:

“Institutions and publicly-owned entities are becoming relatively less important to world real estate as a result,” she said, adding that, “Since the Lehman crisis, the willingness of private wealth to take the place of debt finance or to take a higher-risk development position is now making the difference between deals done or deals mothballed.”

As with residential property, London heads the list for UHNWI investment into commercial property. Attracting particular attention at present is 8 Canada Square in Canary Wharf. Whilst not quite the most stand-out feature of the amazing redevelopment of London’s Docklands which began in the 1980’s – that is Number One Canada Square, the building with “the pyramid” on top – number eight stands proudly alongside it as “the HSBC building”. It is currently up for sale for an estimated £1.1 billion, and is expected to be one of the largest single asset deals anywhere in the world this year.
Reflecting another major trend in the property market, there has been strong interest from Asian buyers, particularly from China. It is reckoned that Asian UHNWIs now hold some 70 per cent of their assets in property.

After London, the US market has the next largest exposure to real estate, with some 20 per cent of its wealth in this sector. Once again, the single largest group of buyers is from Asia: offices, hotels and retail property are all proving popular with Asian clients. And although the UK and the US are the main focus for this real estate activity, continental Europe and Australia are also proving popular.

When it comes to hotels, UHNWIs are prepared to look further afield, too. In September 2013, the luxury Six Senses Laamu resort in the Maldives was sold to a subsidiary of the Singapore-based HPL for US$70 million. HPL is owned by Ong Beng Seng, who is reported to be Singapore’s 10th richest man. Beng Seng also recently bought Soneva Gili in the Maldives from multi-millionaire founder, Sonu Shivdasani.

With the numbers of UHNWIs increasing (as suggested, for example, by The Sunday Times Rich List; see the article of the same name on these pages on May 19 2014), all the signs are that their share of the commercial property market will only grow. Whether it is housing or shops, offices and hotels, it seems that “bricks and mortar” will always be considered as a reliable, and profitable, investment.

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