Nearly 19% of respondents representing ultra-high-net-worth individuals--those with assets over $30m or more--have expressed plans to channel investments into commercial real estate, whereas a slightly higher percentage, 22%, are inclined towards acquiring residential properties in 2024. These findings come from the latest edition of the Wealth Report by Knight Frank, based on surveys from over 600 financial experts managing assets above $3trn globally.

After economic recovery in 2023, where major economies avoided recessions and the global GDP grew by 3.1%, the ultra-rich are adjusting their investment strategies. This recovery also saw a 4.2% increase in UHNWIs globally, reaching 626,619, reversing the 2022 decline. Moreover, the report forecasts a 28.1% increase in the global UHNWI population over the next five years, a pace slower than the 44% growth recorded in the preceding five-year period. This anticipated slowdown is attributed to potential medium-term impacts of higher inflation on global economic growth. Europe, home to 155,232 UHNWIs, is expected to grow by 22.3% to 189,882 by 2028.

Investment opportunity

The report emphasised that the growing group of wealthy individuals is optimistic about opportunities in real estate investment in 2024. It pointed out that the covid-19 pandemic disrupted the delivery of new homes, especially in the luxury residential segment, which is currently presenting a window of opportunity for developers. Additionally, commercial real estate markets also offer significant opportunities, particularly in light of disruptions affecting office spaces and the growing need for investments in making existing property assets more environmentally friendly.

Residential real estate

In 2023, prime global residential property, identified as the top 5% of the market by value, showed resilience amid rising interest rates, with 80 of the 100 cities or regions tracked by Knight Frank experienced stable or positive price growth. Contrary to economists’ gloomy forecasts at the year’s start, the luxury property market achieved a ‘soft landing,’ recording a 3.1% overall gain, stated the report.

Manila led with a 26% increase, while Dubai, the previous leader, saw a 16% rise. The Asia-Pacific region emerged as the strongest performer with a 3.8% increase, slightly ahead of the Americas. Sun locations (up 4.7%) and ski resorts (up 3.3%) outperformed other areas, and despite a general slowdown in sales due to higher borrowing costs, certain markets like Dubai and Miami benefited from wealth inflows.

As markets adjusted to the higher cost of debt, sales took a bigger hit than prices, noted the report. In London, New York, Dubai, Singapore, Hong Kong and Sydney, luxury sales declined on average by 37% year-on-year. Moreover, both New York and London’s prices slightly declined, offering opportunities for buyers. Iberia, particularly the Algarve and Ibiza, both up 12%, stood out in the luxury property market, reported the study.

Commercial real estate

Commercial real estate as an investment experienced a significant downturn in 2023, falling by 46% to $698bn, largely due to challenges posed by elevated interest rates and increased debt costs. This decline was particularly marked among US investors, with outbound investment dropping by 52% as they navigated the complexities of high domestic debt and a global perception that mirrored the US CRE market’s conditions.

Despite the overall contraction, private investors emerged as the most active in the CRE space for the third year running, investing $338bn and accounting for a 49% share of total investment. This slight increase from the previous year’s 48% represents the highest share on record, demonstrating the resilience of private capital, including high-net-worth individuals (over $1m in net assets), who showed the smallest investment decline at 19%, in a high-interest-rate environment.

The most significant investment was directed towards the industrial and logistics sector, marking a first in history by capturing a quarter of all global investment at $174bn. Despite a general decline across all sectors, industrial and logistics, along with retail, hotel and seniors’ housing and care sectors, saw their investment shares increase. Conversely, the office market’s share dipped from 25% in 2022 to 22% in 2023, as did the living sector’s share, from 30% to 24%. However, private capital showed a marked preference for the living sectors, followed by industrial and logistics, and offices. Notably, HNWIs shifted their focus back to office investments, benefiting from reduced competition and potentially seeking high-value assets in a sector known for requiring less operational management.

2024 outlook

Looking ahead, as interest rates are predicted to remain elevated into the latter half of 2024, private capital is set to maintain its substantial influence on CRE investment. This continuation of a trend, where private buyer participation increases after economic disruptions, seems likely, stated Knight Frank. Overall, the report suggests an increased interest in the living sector for 2024, indicating a pivot in investment focus towards areas promising robust rental growth and durability through economic fluctuations. This shift comes despite the anticipated complexities in finalising transactions, attributed to the need for specialised management and existing regulatory barriers, noted Knight Frank.

Knight Frank is a property consultancy and real estate management firm that employs 20,000 staff at 600 offices worldwide. Its investment arm has roughly €4bn in assets under management.

The 76-page report is available .