"An international centre at the confluence of global time zones, London is arguably the world's most global city"
The best addresses in the world are urban; real estate investment is a world city phenomenon, so a disproportionately large amount of UHNWI investment goes into a disproportionately small number of top cities. Global cities are where wealth is made, stored and invested so the selection of a city as a home often reflects other financial commitments there. Our analysis suggests that just under half of all UHNWI real estate investment by value, some 48%, has been into Alpha Cities, the world’s top tier of global urban centres as defined by Globalization and World Cities Research Network (GaWC). These are the world’s 45 most interconnected and significant cities to the global economy. They include all the major world cities, such as London, New York and Hong Kong, as well as important regional centres such as Taipei, Jakarta and Barcelona. They account for just 5% of the world’s population, but attract half of the real estate investment of the richest people on the planet.
The two major UHNWI investors in global real estate by value, Europeans and Asians, have different purchasing habits. Some 65% or $1.2 trillion of Asian UHNWI’s real estate holdings are focused in Alpha Cities. While the number of Asian UHNWIs has grown rapidly, leisure pursuits are typically urban, and consequently the demand for super luxury real estate in the region has been a city phenomenon rather than a rural one. This buying behaviour has concentrated capital in certain markets, particularly new-build ones, and into the prime sector where investment has been for "safe haven store of wealth" with an eye on capital appreciation. European UHNWIs, by contrast, have their real estate wealth more evenly distributed between world cities (46% or $1.1 trillion) and second tier and non-city locations (54% or $1.3 trillion), as they seek to complement their city base with a rural or coastal retreat.
We have also analysed the biggest city recipients of this UHNWI investment. Five cities, Hong Kong, London, Moscow, Singapore and New York, account for 40% or $2.2 trillion of all global UHNWI real estate holdings, by value. All five cities have seen in excess of a hundred billion dollars of UHNWI real estate investment.
Hong Kong is home to the largest amount of direct real estate holdings by value ($798 billion), more than anywhere else in the world. The value of Hong Kong holdings are high because of the weight of mainland Chinese investors pushing into this market, combined with the extremely high property values found in that city. The investment behaviour of the ultra rich is different from that of corporate and institutional investors. The most active commercial markets in the twelve months to February 2014 were New York and London, with Hong Kong making only tenth. But direct ownership by UHNWIs shows that it has been a much more popular market in the world of private wealth.
London, at $676 billion has been the second most invested real estate city and this echoes its position among big ticket corporate investors too. London is a city that we identify as having the broadest reach in attracting UHNWIs from across the entire globe. An international centre of business and culture at the confluence of global time zones, London is arguably the world’s most global city. Unlike Hong Kong, which is reliant on Asia for its wealth, London is unique in attracting a volume of real estate (and other) investment from every single global region.
The remaining UHNWI real estate holdings, by value, are concentrated in the world cities of Moscow ($263 billion), Singapore ($217 billion) and New York ($164 billion), all important on the global stage for the wealthy. Moscow is Russia’s centre of wealth and although highly domestic, it boasts a mature and expanding prime residential market.
Singapore is highly regarded as an international centre of business and finance, and attracts real estate investors from across the Asia Pacific region, with particular concentrations from China, Malaysia and Indonesia.
New York, meanwhile, stands out as the real estate investment capital of the Americas – only standing in fifth place in the world city rankings due to its comparatively low average capital values by the standards of the other top tier world cities.The concentration of this wealth into such a small group of major cities has moved the top tier real estate in these elite cities. According to Savills World Cities index, global city markets have outperformed leisure real estate markets with average annual growth of 11% between 2006 and 2012, against 5% average annual growth outside the major urban centres.
Already, canny investors with an already full “trophy asset” portfolio are looking with more interest at the yields available from real estate. Those looking for income-producing properties are more likely to find high and rising rental incomes in the places where capital values have not been driven by UHNWI inward investment. In practice, this means secondary locations within existing world cities, as well as an increased focus of attention on the residential real estate of those second tier cities around the world that have not yet seen substantial capital growth.