Widening the net

Widening the net

Total Property - Issue 5 2019

More than one in five of the world's wealthiest people are planning to invest in commercial property this year, and New Zealand real estate is increasingly on their radar, according to new research which will be of keen interest to vendors of commercial and industrial assets.

Already a force in commercial property investment globally, private investors made US$289 billion (NZ$434 billion) of property transactions in the 12 months to the third quarter last year, according to the 2019 edition of The Wealth Report published by Bayleys’ global partner Knight Frank.

The report reveals that nearly a third of all commercial real estate transactions were made by high-net-worth individuals and 21 percent of all private wealth is held in commercial real estate investments.

New Zealand has benefited from significant cross-border capital flows into commercial property, sitting at 30th on Knight Frank's index with a total of NZD$2.6 billion invested last year. Foreign and local private wealth capital invested into New Zealand commercial property last year totalled NZ$500 million.

The new research draws on Knight Frank’s unparalleled access to private wealth. With 5,400 ultra-wealthy individuals on its global database, the company advises one in five of the world’s billionaires and has international desks in markets including China, India, the Far East and Middle East.

Ryan Johnson, Bayleys’ national director commercial and industrial, says owners of property in New Zealand should be mindful of the wide appeal it holds for wealthy investors, including those offshore.

A major drawcard is this country’s attractive yields and total property returns, which exceed those on offer in most mature markets across North America, Europe and Asia. The asset class in New Zealand has consistently generated double-digit returns following the GFC recovery.

When an individual is from a volatile area or is investing in the context of global instability, the ‘safe haven’ element of the New Zealand market adds to the appeal, says Johnson.

“Some wealthy investors are almost prepared to pay a premium to place capital outside their countries where there is a geopolitical risk.

“New Zealand has a stable political system, an easy-to-understand tax system and well-regulated markets, which makes this country attractive to private as well as institutional investors.

“For owners and vendors, understanding the investment mindset of wealthy investors – and considering potential buyer interest from offshore – are increasingly important when seeking to achieve the best possible sale,” says Johnson.

“Trying to see the opportunities through the eyes of a wealthy offshore investor can help vendors to maximise the value of their assets in the market, and ultimately the proceeds of a sale.

“Investors are seeking not only a sound financial proposition, but also an investment that fits their lifestyle and personal preferences. All of these considerations provide wealthy private real estate investors with the opportunity to own assets in one of the most stable markets on a global level.”

According to The Wealth Report, the most popular investments globally are offices, with US$330 billion invested, equating to just under a third of all commercial property investment last year, while retail at $153 billion accounts for 17 percent. Industrial, at $139 billion, makes up 15 percent, hotels ($62 billion) 7 percent, and senior housing and care ($20 billion) 2 percent.

Increasingly, wealthy investors are exploring growth segments such as education facilities, leisure, student housing and “last mile” logistics property, as well as targeting office investment in key tech and innovation markets.

Chinese investors, in particular, are increasingly interested in industrial parks and logistics centres, an element of their government’s vast international Belt and Road initiative, say the report’s authors.

Despite a darkening global economic outlook, Knight Frank's global head of capital markets research, William Mathews, says wealth creation will remain a constant this year.

“We expect the appetite from private investors for commercial property will increase as the number of wealthy individuals grows,” he says.

The global high-net-worth population is forecast to rise by 22 percent over the next five years, meaning an extra 43,000 people will be worth more than US$30 million (NZ$45 million). Asia, with 48,245 ultra-wealthy people, has overtaken the US as the largest regional population of high-net-worth individuals.

New Zealand has over 1,200 individuals with over NZ$45 million, many of them on NBR's Rich List as property investors.

The wealthiest newcomer to last year's list was American investor Ric Kayne, the man behind the world-ranked Tara Iti Golf Club near Mangawhai, who has $1.8 billion. Wellington property magnate Mark Dunajtschik is second on the newcomer's list, with $300 million.

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