Real Estate

UK, France Buck Trend In Drawing More Private Capital To Property – Knight Frank Study

Editorial Staff 2 March 2023

UK, France Buck Trend In Drawing More Private Capital To Property – Knight Frank Study

The report delves into the data from a study of capital flows into the developed world's property market.

The UK and France were only two of the top destinations for private capital property investment to chalk up year-on-year rises in 2022, according to a new report from property consultancy Knight Frank.

The US, UK, Germany, Canada and France were the top destinations for private capital in 2022. In the UK, investment rose 1 per cent and in France, it surged by 21 per cent last year.

In other countries, including the US, and parts of Asia, inflows from private capital fell below the levels seen in 2021. The fall was particularly severe in Germany, for example.

Private investors were the most active buyers in global commercial real estate investment in 2022, the firm’s Wealth Report said. A total of $455 billion was invested, accounting for 41 per cent of the total.

This represents private investors' highest share of global commercial real estate on record and it is the first-time that private investment has surpassed institutional investment. 

Institutions invested a total of $440 billion in 2022, 28 per cent below 2021 volumes, but 2 per cent above the 10-year average. By comparison, while private capital investment was down 8 per cent from its all-time high of $493 billion in 2021, 2022 was still the second strongest year in history sitting 62 per cent above the 10-year average. 

Multifamily residential – or private rented sector (PRS) was the investment of choice with $194.9 billion invested into this sector, followed by offices and industrial and logistics combined. 

US cities remained a target for private investors in 2022, with US metropolises accounting for 67 per cent of total private investment. Paris was the only city outside of the US to feature in the top 10. Although eleventh overall (cross-border and domestic) in 2022, London was the top performing city for cross-border private capital with $2.5 billion invested. Overall, this accounted for 44 per cent of the total private capital investment into the city and 15 per cent of total global cross-border private buyer investment into cities in 2022. (Such figures might suggest that the supposedly damaging impact of Brexit on London is exaggerated, although post-Brexit softness to sterling has made real estate in the city relatively cheap.)

“Private buyers are taking advantage of the ongoing repricing of assets and stronger currency positions, which has given them a competitive advantage against large institutions who are more sensitive to debt and often have shorter-term investment horizons,” Alex James, head of private client advisory at Knight Frank, said.

Inflation influence
Inflation will be a significant factor influencing decisions in 2023, with 80 per cent of respondents to Knight Frank’s High-net-worth Pulse Survey stating that it would influence their investment decisions either significantly (37 per cent) or to some extent (43 per cent). The US is expected to be the top destination for private capital again next year, followed by the UK, Germany, Japan, and the Netherlands. Of the top 10 destinations for private cross-border capital, seven are in Europe, with private investors favouring the continent. 

Offices will continue to dominate. Over 40 per cent of total private cross-border capital is forecast to be targeted at the office sector, while industrial and residential are expected to receive a 19 per cent share each. UK offices are forecast to be the top target for UHNW individuals in 2023, with offices in the US, Germany, Australia and the Netherlands also likely to experience robust demand. 

January saw the Hong Kong-based family behind property developer Chinachem acquire Deloitte’s London headquarters for £350 million ($420 million), while a private UHNW individual acquired 50 Broadway, a government-let building in St James Park, Westminster, for over £100 million in February.

Wealthy individuals from the US are forecast to be the most active, accounting for roughly half of all global cross-border capital into commercial real estate in 2023. Likely targets include offices in the UK, Japan and Singapore, as well as industrial assets in Germany, Japan and South Korea. 

In total, global commercial real estate investment in 2022 stood at $1.12 trillion.

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