Private wealth shaping real estate markets

Family offices are filling the vacuum left by corporate bankers in the world’s real estate markets, as new research reveals the asset class accounts for approximately a fifth of the invested wealth of all ultra high net worth individuals.

According to a report published by international real estate adviser Savills this week, the world’s investable real estate market – property that is traded regularly, particularly commercial property – is worth $70 trillion (€51.5 trillion), and half of that is being bought by private individuals or institutions.

Around the World in Dollars and Cents also revealed that the wealthiest 0.003% of the world’s population have average real estate holdings of $26.5 million each.

Yolande Barnes, head of Savills world research, said: "Since the 'North Atlantic debt crisis' of 2008, sovereign wealth funds, wealth management companies, private banks and family offices have stepped into the property deals that corporate bankers have deserted."

Savills estimates around 35% of global real estate deals in 2012 worth more than $10 million were only made possible because of private funding.

The report revealed European and Asian UHNW individuals were likely to allocate the largest percentage of their private wealth to real estate, at 31% and 27% respectively. The Middle East was close behind, allocating 26%.

In contrast, North American and Latin American private investors only allocated 7% to real estate. African UHNW individuals allocated 10%, while in Oceania it accounted for 16%.

Globally 92% of real estate investments are in the home market, but in Africa this is just 44%, and 66% for Latin America.

London was the “standout” global destination for private real estate investment, according to the report.

Barnes said there had been a tendency for UHNW individuals to focus on “safe haven” trophy properties in recent years, in an effort to grow capital and preserve wealth. However, she added: "In future, we anticipate that some will begin to seek more productive, long-term income-producing positions.”

Barnes said UHNW individuals would be competing more directly with institutional investors in the years ahead, but would have the advantage of being less constrained by formal criteria.