Private Investors Account for a Quarter of Global Real Estate Transactions
Private investors are becoming an ever more integral part of the commercial real estate market; it has been reported (here) that they now account for over a quarter of all global commercial real estate transactions. Further to this, the head of capital markets research at Knight Frank has noted that they “expect that the appetite from private investors for commercial real estate will continue to increase” adding that in the next two years “32% of ultra-high net worth individuals will invest in cross-border real estate deals”.
This research also highlights that Asia is starting to challenge the U.S. in terms of possessing the largest regional population of ultra-wealthy investors. This is promising for UK commercial real estate as Asia Pacific investment in London real estate is at a five-year high (£3.4 billion in the first two quarters of 2017) and accounted for almost half of the deals reported in the first six months of 2017.
Given the firm foothold that private investors now have in the commercial real estate market, institutional investors are taking note of their presence as they are increasingly likely to encounter them in a transaction. As such, the market is now becoming more aware of the drivers that motivate private investors, which are often dependent on the personal incentives of that individual.
A number of key themes have emerged that attract private investors to commercial real estate; control, risk mitigation and globalisation:
- Commercial real estate gives private investors the ability to achieve targeted investment decisions in terms of location, sector and tenant components.
- Investors are provided with regular income and an asset with an underlying, and often increasing, capital value.
- Investing in commercial real estate removes the necessity of passing decision making to third-parties, or being constrained by the need to reach agreement between numerous other investors who often have different objectives.
- Ultra-high net worth individuals are seeking new markets to limit their domestic exposure and to diversify their portfolios.
“These themes, plus individual investor specific drivers, will continue to attract private investors towards global real estate.”