The rise of private wealth in real estate

The importance of private wealth in large real estate transactions around the world has grown nearly threefold since 2009.

21 January 2014, Words by Yolande Barnes

 

The growth in numbers of UHNWIs has been significant, reaching almost 200,000 in 2013, with a combined wealth of $27.8 trillion. Wealth-X has forecast that this will exceed $40 trillion by 2020. The map below illustrates the global distribution of this wealth and how much of it is held in real estate. It shows that the propensity to own real estate directly is greatest in EMEA (particularly in Europe). In contrast, North Americans (particularly in the US) own relatively small proportions of real estate in relation to all holdings, because financial instruments are preferred.

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Private wealth has become increasingly important in large real estate transactions globally and has grown nearly threefold since 2009. Private investment deals are taken here to mean privately funded property companies and REITS. The majority of these transactions are in commercial property sectors not usually associated with the so-called “investments of passion”. This is an important trend, showing private wealth has a commercial edge. It is now the lead form of finance being used in over half of all the world’s biggest property transactions – each worth at least US$10 million.

Private wealth is more commonly used in local deals than cross-border deals. A smaller proportion of international transactions, by one nationality into another, was undertaken by private companies/individuals than was the case in local transactions. Having said this, about 30% of all large cross-border deals were led by private wealth in 2012. Many more will have had a portion of private wealth investment.

The most notable trend is that private wealth is becoming more important in the world of real estate overall. Whereas it constituted around 45% of the large deal world market in 2007 and 2008, this contribution has now grown threefold in absolute terms and by nearly a quarter in proportional terms.

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The number of all global “big deal” (US$10 million+) transactions fell to a low point of 7,400 in 2009, worth around US$400 billion. By 2012, these numbers had recovered by 10% to above 2007 levels at US$900 billion in 18,000 transactions. This was largely due to the injection of private wealth over the period.

We estimate that the increasing participation of private wealth has meant that transactions in 2012 were 6,200 and US$190 billion higher than would otherwise have been the case. So, had private transactions not increased and the property world remained reliant on corporate sources of investment finance, 2012 transactions would have been 35% lower than they actually were.

 

 
 

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Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883