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SAVILLS WORLD RESEARCH 2014

AROUND THEWORLD IN DOLLARS

AND CENTSHOW PRIVATE MONEY MOVES AROUND THE REAL ESTATE WORLD

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“GLOBAL REAL ESTATE ISMOSTLY RESIDENTIAL AND HELD

BY OCCUPIERS. BUT IN THEWORLD OF TRADED INVESTABLEPROPERTY, PRIVATE OWNERS AREBECOMING MORE IMPORTANTTHAN INSTITUTIONAL AND

CORPORATE ONES.”YOLANDE BARNES, SAVILLS WORLD RESEARCH


THE WORLD OFREAL ESTATE

We estimate that the value of all world real estate totals around US$180trillion. Most of this is directly owned residential property and most

of that (72%) is owner occupied. About 17% of it is commercial property.Investable commercial property totals around US$20 trillion, of whichabout half is owned by private individuals, either directly or indirectly,and the remainder by corporate and institutional investors. At the core ofthis privately owned real estate is directly owned property holdings, heldindividually rather than through other investment structures. To ourknowledge, these holdings have never been measured against commercialand corporate real estate before. Most direct real estate holdings ownedby the world’s 200,000 private, ultra-high-net-worth individuals (UHNWIs)are in residential property, while commercial properties tend to be heldnon-directly, in corporate or other investing entities. Accounting forjust 0.003% of the world’s population, the real estate holdings of theseUHNWIs together total over US$5 trillion, or around 3% of all the world’sreal estate value. This report examines how privately wealthy individualsare becoming an increasingly important force in the world of real estate.

Source: Savills World Research Estimates

www.savills.co.uk/research 3


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This Spotlight report is published on behalf of Savills plc by Casella Productions Ltd. This report is for general informative purposes only. It may not be published, reproduced or quotedin part or in whole, nor may it be used as a basis for any contract, propspectus, agreement or other document without prior consent. While every effort has been made to ensureits accuracy, neither Savills plc nor the publisher assume responsibiity for effects arising from this publication. Savills and the publisher accept no liability whatsoever for any direct orconsequential loss arising from its use. The content is strictly copyright and reproduction of the whole or in part in any form is prohibited without written permission from Savills research.Investment Advice: The infomation and opinions contained in this magazine do not constitute professional advice and should not be relied upon. Specific advice relating to your individualcircumstances should be obtained.

WELCOME

RISE OFPRIVATEWEALTHDeals have trebledsince 2009

06

RICH PICKINGSGobal real estateand privatewealth creation

08

WHO BUYSWHAT, WHEREType and regionare crucial

11

WORLD WEALTHFLOWSUHNWI luxuryhot spots

14

CHINESEINVESTMENT

Security anddiversity are key

18

DESTINATIONNEW YORKHealthy andattractive returns

19

REAL ESTATETRENDSRegions playing animportant role

20

SUMMARY& OUTLOOKThe future forglobal real estate

21

In this report, we take a look at private real estate

ownership and its impact on global market behaviour.

In particular, we investigate where wealth is being

created, how much of it is invested in real estate, by

whom, where and what type of asset is being bought.

We have focused on this because we believe that

private wealth is having an important effect on the

world property stage, and up until now it has not been

studied as fully as corporate or institutional wealth.

We are pleased to be partnering with Wealth-X on this

project as they are premier providers of information

on the private wealth sector. Together we measure

the impact of ultra-high-net-worth

individuals (UHNWIs) alongside

more conventional measures of

property investment flows and we

predict how they may continue

to change the face of world real

estate in future.

Yolande BarnesDirectorSavills World Research

Wealth-X is pleased to partner with Savills in

presenting the first comprehensive study on real

estate investment by the world’s UHNW community.

At a time when ultra wealthy populations and asset

growth are accelerating, this report is essential reading

for anyone tracking the impact of UHNW investment

on the global real estate markets. Wealth-X is uniquely

positioned to provide global insight on the world’s

UHNWIs by using our extensive database of hand-

curated intelligence on those with net assets of at

least US$30 million. Our studies have shown that the

UHNW population reached an all-time high of 199,235

individuals with a combined wealth

of US$27.8 trillion in 2013. We

predict this population will grow

by 22% by 2018 and its assets by

over 30%, presenting abundant

opportunities for those involved in

global real estate investment.

Mykolas D. RambusChief Executive OfficerWealth-X

4 www.savills.co.uk/research

AROUND THE WORLD IN DOLLARS AND CENTS


Throughout history, theaccumulation of wealthhas often gone hand

in hand with the acquisitionof land. Status and power incultures as diverse as feudalJapan, medieval Europeand dynastic China wereinextricably woven with theownership and control ofland. Later industrialisationsaw the acquisition of landand the construction ofgrand houses. These werea hallmark of new wealthfor those who wished toacquire the lavish trappingsof the more establishedmoneyed-classes.

STATUS SYMBOLIn the current post-industrialera, there is a looser fitbetween land and power butreal estate, especially anindividual’s private residenceor residencies, still remains a

status symbol for many. Aglobal real estate market hasemerged among UHNWIs,many of whom are worldwideplayers in their hunt for abusiness base as well asinvestments in residencesand second homes.

This means that a growingpopulation of UHNWIsaround the world are havinga significant effect on realestate markets at a globallevel. It is important for thoseinvolved in the global realestate world of cross-borderinvestment to understandthis particular strand ofinvestor behaviour.

Meanwhile, the corporateand institutional ownershipand acquisition of real estateglobally that once dominatedproperty markets, suffered asetback in 2008 as creditmarkets shrank and theavailability of debt funding for

property deals diminished.The co-incidence of the riseof private wealth, particularlyin the “new world” anddiminished debt availability,especially in the “old world”has been a fortuitous andgame-changing combination.

COMMERCIAL SIDESovereign wealth funds,wealth managementcompanies, private banksand family offices havestepped into the propertydeals that corporate bankershave deserted.

Indeed the generalwillingness of private wealthto take the place of debtfinance or to take higher-riskdevelopment positions isnow making the differencebetween deals done orschemes mothballed.

This means that the tastesand preferences of private

buyers are having an impactnot only on the so-called“investments of passion”– the mansions, holidayhomes and landed estates,for example – but also oncommercial propertytransactions that would havebeen the domain of thecorporate sector just 10years ago.

It is this “serious”,commercial side of privatereal estate in which we areespecially interested. Thepropensity for UHNWIs totake real estate exposure,their preferences and tastesin doing so and theirbehaviour, either in directproperty ownership orthrough family offices andother commercial entities, ischanging the face of all realestate: offices, industrial,residential, retail as well as“niche” projects.

FOR CENTURIES, POWER, WEALTH ANDLAND HAVE BEEN INEXTRICABLY LINKED




THE RISE OF PRIVATEWEALTH IN REAL ESTATE

THE IMPORTANCE OF PRIVATE WEALTH IN LARGE REAL ESTATETRANSACTIONS AROUND THE WORLD HAS GROWN NEARLY

THREEFOLD SINCE 2009

Total UHNWI wealth held as real estate by global region

Source: Savills World Research / Wealth-X

The growth in numbersof UHNWIs has beensignificant, reaching

almost 200,000 in 2013,with a combined wealth of$27.8 trillion. Wealth-X hasforecast that this will exceed$40 trillion by 2020. The mapbelow illustrates the globaldistribution of this wealthand how much of it is heldin real estate. It shows thatthe propensity to own realestate directly is greatest inEMEA (particularly in Europe).In contrast, North Americans(particularly in the US) ownrelatively small proportionsof real estate in relation to allholdings, because financial

instruments are preferred.Private wealth has

become increasinglyimportant in large real estatetransactions globally andhas grown nearly threefoldsince 2009. Privateinvestment deals are takenhere to mean privately fundedproperty companies andREITS. The majority of thesetransactions are incommercial property sectorsnot usually associated withthe so-called “investments ofpassion”. This is an importanttrend, showing private wealthhas a commercial edge. It isnow the lead form of financebeing used in over half of all

Importance of private wealth in real estate investment,by number of transactions

Source: Savills World Research / Real Capital Analytics (RCA)

UHNWI total wealthand holdings (US$ trillions)

Non real estate holdingsReal estate holdings

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the world’s biggest propertytransactions – each worth atleast US$10 million.

Private wealth is morecommonly used in local dealsthan cross-border deals. Asmaller proportion ofinternational transactions, byone nationality into another,was undertaken by privatecompanies/individuals thanwas the case in localtransactions. Having saidthis, about 30% of all largecross-border deals wereled by private wealth in2012. Many more will havehad a portion of privatewealth investment.

The most notable trendis that private wealth isbecoming more importantin the world of real estateoverall. Whereas itconstituted around 45% ofthe large deal world market in2007 and 2008, thiscontribution has now grownthreefold in absolute termsand by nearly a quarter inproportional terms.

The number of all global“big deal” (US$10 million+)transactions fell to a low pointof 7,400 in 2009, wortharound US$400 billion. By2012, these numbers hadrecovered by 10% to above2007 levels at US$900 billionin 18,000 transactions. Thiswas largely due to theinjection of private wealthover the period.

We estimate that theincreasing participation ofprivate wealth has meant thattransactions in 2012 were6,200 and US$190 billionhigher than would otherwisehave been the case. So, hadprivate transactions notincreased and the propertyworld remained reliant oncorporate sources ofinvestment finance, 2012transactions would havebeen 35% lower than theyactually were.

PRIVATE VS CORPORATEINVESTMENT

The amount of moneyinvested annually in worldreal estate transactions ofover US$10 million has notbeen as great amongcorporate and institutionalinvestors as it has beenamong private companiesand individuals.Overall transaction

numbers in the corporatesector are still below 2007levels, while those in privatereal estate deals are nownearly a third higher. Onlyin cross-border tradedo corporate investorsstill predominate.

Most of the growth inprivate wealth flows to realestate emanate from Asia.Private Asian transactionsare now over three timesthat of 2007. Looking inmore detail at cross-border

flows of private wealth inreal estate, there aredistinct differences in thebehaviour of Asian tradersversus others.Real estate in Europe is

much more likely to attractprivate capital fromoverseas so it experiencesa net inflow of funds for realestate deals from privatesources. Asia, on the otherhand, is a net exporter ofprivate capital in real estate.Private Asian investors buymore real estate overseasthan is sold to cross-borderinvestors in Asia.

This situation is acomplete reversal of 2007when Asia was a recipientof private cross-borderactivity and EMEA anexporter of funds intoproperty. This reversal can

be partially explained byweakening EMEA Forexrates and strengtheningAsian currencies, as well asincreasing opportunities inthe EMEA region due tothe weakness of localinvesting institutions.

It is important to notethat private wealth behavesdifferently to corporateentities in the cross-bordersphere. This switch in Asiafrom importer to exporterof funds is much lesspronounced outside theprivate sector and EMEAhas remained an importerof funds among corporateentities. This is a clearexample of how privatesector wealth displaysdistinctly differentcharacteristics to thecorporate sector.

Corporate investment inglobal real estate

Private wealth investment inglobal real estate

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Net flow of private crossborder investment

Net flow of all cross border investment

Source: Savills World Research / RCA

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Average age of UHNWIs with real estate as theirprimary industry

THE BRICKS ANDMORTAR

BILLIONAIRESThe creation of wealth by real estate entrepreneurs may

not be especially large on the global stage at presentbut it is extremely lucrative


Real estate wealth held by UHNWIs, proportion oftotal wealth

Only 5.4% of theworld’s UHNWIsmade their money

primarily from real estate butthose that did are worth, onaverage, twice that of theirnon-real estate counterparts.It would appear that it

takes time to make moneyfrom property. The averageage of UHNWIs whoseprimary industry it is was60, compared to 58 for allUHNWIs generally.Those most likely to have

made money this waywere found in Oceania,where 8.2% of all UHNWIwealth was created in realestate activities. Australia,in particular, seems tohave offered opportunitiesin the past to real estateentrepreneurs. They havebeen instrumental in thedevelopment of majorcities, urbanisation andresort development, whichhappened some while ago,so the average age of the

property mogul here is 65.Meanwhile, only 4.3% of

African UHNWIs have realestate as a primary industry.It would appear that theimmaturity of the markethere has meant that this isnot a big source of privatewealth in comparison toother sectors. However,the maturation of propertymarkets in Africa may wellchange this in the future andprovide more opportunitiesfor wealth creation.

A higher than average, 6.7%of Asian UHNWIs have realestate as a primary industry.The total wealth of theseindividuals is US$1.8 trillionand their average holdingsUS$610 million each. Thiscompares to an averageholding by all global UHNWIsgenerally of US$139 million.So Asian markets appearto be the most lucrative inwhich to create a real estatefortune, and the average ageof UHNWIs is younger at 55.

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HOLDINGS AND FLOWSWhen it comes to real estate, the world is top heavy. The vast majority of big ticketdeals and UHNWI holdings are in the northern hemisphere, in transparent, highervalue markets. Europe is tops for UHNWI residential holdings, and has been themajor beneficiary of commercial cross border capital. Domestic money in North

America and Asia has driven commercial investment in these regions.

AUSTRALIANENTREPRENEURS HAVEBEEN INSTRUMENTALIN THE DEVELOPMENT

OF MAJOR CITIESAND RESORTS

Source: Savills World Research / RCASource: Savills World Research / Wealth-X

UHNWI residential holdings Commercial inflows: 2007-2013

US$ billionsUS$ billions




Ownership of residential property among UHNWIs


Types of big ticket real estate transactions


A WORLD OF CHOICEBig ticket investors share a penchant for offices, retail and residential

in most places except Asia where land is king

Large real estate dealsin 2013 have beendistributed across the

globe in similar proportionsbetween sectors – withthe notable exception ofdevelopment land. Thissector is tiny in EMEAand the Americas, butcompletely dominatesreal estate markets onthe Asian continent. Thetransfer of land ownershipfrom the state in Chinaplays an increasingly bigpart in Asian deals.

In the world ofcommercial and cross-border investable realestate, offices continueto dominate the largedeals, with retail comingsecond – except in theAmericas where residentialapartments in purpose-built blocks designed forletting are favoured aheadof retail property. Industrial

units and hotels representsmall asset allocations inall jurisdictions, by value.Residences (as opposedto letting portfolios) are notincluded in the graph.

In the world of privatewealth, residential propertyforms an importantcomponent of real estateportfolios. We haveidentified total globalresidential holdings ofUS$5.2 trillion amongUHNWIs, averaging US$15million apiece. The totalvalue of all these held byUHNWIs globally amountsto more than the total value

of all residential propertyin France.

Between them, Europeanand Asian internalinvestment in residentialreal estate makes upnearly half of the globalinvestment of UHNWIsinto residential real estate.These two regions alsoplay the biggest roles ininvesting into other regions.Asia with its investmentinto Europe and NorthAmerica, and Europe intoNorth America and LatinAmerica. The biggest inter-regional investment is fromEurope into North America

(US$160 billion).Geographically, the

highest levels of UHNWIresidential propertyownership are in regionsfrom which individualsoriginated. Europe standsout as the top region forresidential holdings byvalue with US$2.4 trillionfollowed closely by Asiaat US$1.8 trillion. Thisshows UHNWIs preferto invest in “what theyknow”. UHNWIs from the“old world” (North Americaand Europe) are muchmore likely to hold multipleresidential properties indirect ownership thanthose from Africa andAsia. This is reflected inthe concentrations ofhigh-value enclaves and“billionaire boltholes” foundin Europe and America, asrevealed in our analysis ofwho buys what, where.

UHNWIS HAVEGLOBAL REAL ESTATE

HOLDINGS OFUS$5.2 TRILLION

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WHO BUYSWHAT, WHERE

Not only has the participation of private sector investment increased, butthe importance of certain global regions in real estate has increased too

In 2007, Asian participationin big-ticket commercial realestate deals was 22% of themarket by value. Since 2010,it has averaged 50%. Most ofthis increase has been fromthe private wealth sector. Atleast 45% of all big-ticketreal estate deals in Asia weremade by private individualsand private companies.

It is perhaps unsurprising

that the participation ofprivate Asian wealth hasbeen so great in real estateof late. Around 7% of allUHNWIs in the region madetheir fortunes from the sector.This is a higher proportionthan in any other globalregion apart from Oceania.Asian UHNWIs have mademore money from real estatethan other nationalities.The

average total wealth of thosemaking money from real estatein Asia is US$610 million.Most UHNWIs direct

property holdings are homes(including multiple secondhomes). North Americanshave overwhelmingly investedin this type of property andAsians too are similarlyconservative in their directproperty holdings. Other

types of property are morelikely to be held in companiesand other investing vehiclesthan held directly.

Other nationalities havemore significant directholdings (up to 20%) of othertypes of property. Europeansand Oceanians are morelikely to hold farms, estates,ranches. Likewise Africanswill hold land: rural, resort

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Source: Savills World Research / Wealth X

Value of property by region of origin

UHNWI’s direct property holdings by type

UHNWI direct property holding by region of originor urban, in direct ownership and LatinAmericans will hold commercial propertydirectly. Middle Easterners seem to havearound 17% of their directly ownedproperty in a well-balanced mix of realasset types. It also has the highestaverage value at over US$35 million,while North American holdings are muchlower in value, averaging US$5 million.Most holders of direct real estate

are more likely to own it in their homeregion than anywhere else – this isoverwhelmingly the case for NorthAmericans. Latin Americans, onthe other hand, are exceptional ineschewing their homeland in favourof direct holdings north of the border.Africans are the next most likely toinvest somewhere other than theirhome territory and when they do they

favour European destinations. Asians,Europeans and Oceanians are all mostlikely to buy in North America thanany other global region when investingoverseas, followed by Europe. Therewould therefore seem to be a preferencefor “safe haven”, old world destinationsfor direct real estate holdings amongUHNWIs.The overall value of direct property

holdings is highest in Europe, partly dueto the number of investors, but also dueto high average values in the region.The number of Asian UHNWIs withdirect property holdings is smaller, eventhough the average value is higher.

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OVER 45% OFALL BIG TICKETREAL ESTATE

TRANSACTIONSIN ASIA

WERE MADEBY PRIVATEINDIVIDUALSAND PRIVATECOMPANIES




REGIONAL TRENDSWealthy Europeans and Asians are the most likely to

influence the world of real estate directly and increasinglythey are turning their attention to cross-border deals

Largest recipients of private cross border capital,and % of all private capital 2012/13


Proportion of wealth held in direct real estate 2012/13


Real estate is most important to thetotal wealth holdings of European,Asian and Middle Eastern

UHNWIs where more than a quarter ofwealth is held in this form. It is howeverwealthy Europeans and Asians whoare most likely to influence the world ofreal estate directly. American UHNWIshave the potential to do so by vastlyincreasing their direct property holdings,but at present they are more likely toinfluence it through financial instrumentsrather than direct investment.

When it comes to the individualcountries that receive most cross-border real estate investment, the USstands out as a significant internationalmarket with over US$9 billion investedin big ticket deals in 2012/13.The UK is the second largest recipient

of cross-border investment after theUS, with over US$7 billion large dealsdone in 2012. This inward investmentrepresents nearly half of all UK deals,establishing it as a major cross-bordermarket, ahead of China, where cross-border real estate investment is a tiny(circa 1%) share of all property deals.

Overall, Europe is a major recipientof overseas investment. This is notonly because of Europe’s high valuesrelative to the rest of the world butalso because of its established andtransparent markets. It is noteworthythat the only “new economies” thatfeature in the top countries for cross-border investment are China (through itssheer size), Singapore and Russia.

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W ith the importanceof private wealthgrowing in all areas

of real estate investment, webelieve that understandingthe geography andpreferences in the residentialsector can shed light onUHNWI investment behaviourin other sectors too.

The map above shows themajor locations around theworld favoured by UHNWIbuyers of residential realestate. It highlights not only

where they like to live butalso the geographies andjurisdictions that they mightfavour for other types of realestate holdings — and otherinvestments — as well.

Most notably, when itcomes to residencies,UHNWIs may invest cross-border but they will tend tostick to destinations withintheir global region, to areasthey call “home”. NorthAmericans are the mostloving of their home nation Source: Savills World Research / Wealth X

THE FLOWOF WEALTH

We pinpoint the major locationsaround the globe favouredby UHNWI buyers of luxury

residential real estate

Region of Origin Top cities for residentialproperty

Africa London

Asia Hong Kong, Singapore,Mumbai, London

Europe London, New York,Moscow, Monaco

Latin America Miami, New York, Los Angeles

Middle East Dubai, Abu Dhabi, London

North America New York, Los Angeles,Miami, San Francisco

Oceania Sydney, London




and overwhelmingly favourthe US. Latin Americans aresimilar but will also venturenorthwards to cover theentire American continent,including the Caribbean.

Africans, Asians and thosefrom the Middle East are alsoconcentrated in their ownregions but Europeans are a

little more widely dispersed.The more established

wealth of Europe seems bestversed in the notion of globalhome-ownership. Not only isEurope itself full of billionaireboltholes but Europeansthemselves venture to manyluxury island resorts in theCaribbean and the Far East

as well as into parts of theUS and Canada.

One city that stands out asan extraordinary exceptionwhen it comes to overseasresidencies is London. Thiscity is a second home toUHNWIs from all regionsof the globe. This buyerbehaviour in residential real

estate both reflects andhas a knock-on effect onother types of real estateownership too. Londonis a large part of the UK’sdominance in cross-borderreal estate investment of alltypes. Residential propertyis just a part of this globalcity phenomenon.

EUROPEANS SEEM WELL VERSED INTHE IDEA OF GLOBAL OWNERSHIP




UHNWIs buy residential real estate for a variety ofpursuits, climates and attractions

GLOBAL HOT SPOTS

There are a significantnumber of hot spotsaround the globe

where UHNWIs will invest.These hot spots fall intothree categories: cities,retreats and destinations.

Global cities areimportant for UHNWIs asthis is where wealth ismade, stored and invested.UHNWI home ownership inthese cities closely reflectsand underlies a predilectionfor other types of realestate investment in thesame cities – and probablyother types of inwardinvestment as well. Theselection of a city as ahome often reflects otherfinancial commitments

there. Top cities, by thesize of residentialcommitments are NewYork, followed by London,Hong Kong and Singapore.

Global retreats are many

and varied, includingislands, coastal resorts,lakes and countryside. Thetop location, by the valueof UHNWI homes foundthere, is the Caribbean.Many other retreats arepart of the city scene,acting as weekend

boltholes from places ofwork and business. TheUS has many examples ofthese, the Hamptons,Winnetka and NantucketIsland for instance.

Destinations of thewealthy have evolved formany reasons, mostlyrelated to pursuits such asskiing, hunting, shooting,fishing, golf, wine andsailing. Places as variedas Aspen, Colorado andthe Scottish Highlands fall

into this category. Someare related to specificbusiness types, forexample, tech industries,tax havens, film-making oreven politics. All arecharacterised by high-endhousing in exclusiveenvironments, such asBeverly Hills, Monaco andBethesda, Maryland.

The emergence ofretreats and leisuredestinations is a nascentmarket in Asia. Thedevelopment of resorts torival Europe’s sun and skiplaygrounds is only justbeginning in the East;Japan’s ski resorts andChina’s Hainan Islandbeing rare examples.

CITIES AND THEIRRETREATS DOMINATE

THE UHNWI MAP




TOP 30 ENCLAVES RANKED BY AVERAGEVALUE OF UHNWI INVESTMENT


Destinations



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In London, ABP China recently made a £1 billion direct investment in a 35-acre site in the Royal Docks to deliver a3.5 million sq ft office complex targeting Chinese businesses. In New York, Soho Property has spent more money onManhattan real estate than any international investor in the last three years. Soho’s purchases included a partnership ina 40% stake in America’s most valuable office tower, the General Motors Building, for $700 million. Partnering with alocal player is a common approach, tapping into native market knowledge, while a minority stake can avoid higher taxes

triggered when a non-domestic entity has a controlling stake in some markets, notably the US.

Chinese cross-borderinvestment into globalreal estate markets

has risen rapidly since theglobal financial crisis of 2008.Wealthy Chinese individuals,with limited investmentopportunities at home, haveincreased their overseasinvestment rapidly as theyhave sought to diversifyportfolios, seek capitalsecurity and find a footholdin international markets.

Mainland China, whencombined with Hong Kong(through which a largeproportion of mainland Chinainvestment passes) is thesecond largest source ofcross-border real estateinvestment in the world afterthe US. In 2013 to date,$23.7 billion cross-border

investment has flowed fromChina and Hong Kong.Money invested directly fromHong Kong is now down42% on 2007 volumes, butChinese direct investment isup 1165%.

Private capital isparticularly important in thedomestic Chinese market.China saw $152 billionprivate capital investmentin the year to October2013, according to RCA,accounting for half of alltransactions in the period.This is well ahead of even theUS, where private capitaltransactions stood at $85billion in the year to date,accounting for 34% ofall transactions.

It is this private capital,particularly money flowing

GLOBAL CHINESEINVESTMENT

Wealthy Chinese individuals look to international markets for capitalsecurity and to diversify their portfolios

into domestic property, thatwas in the first wave ofChinese cross-borderinvestment. Those Chinesewith overseas businessinterests were among thefirst to invest abroad,followed by a second waveof buyers seeking propertyfor their offspring (oftenbases for student children),or to achieve permanentresidency.

These buyers sought outestablished, internationalmarkets in jurisdictions thathave cultural ties with Chinaor with a large Chinesemigrant population. HongKong, Macau and Singapore,have been followed by othertop tier global cities withChinese diasporas such asVancouver, London and LosAngeles. We anticipate that a

third wave of investorsseeking income will follow,chasing higher yields in awider range of locations thanpreviously.

By total value, it is the bigticket investments byChinese institutions that arereally starting to make waves.Major investments incommercial projects,development sites andtrophy buildings have beenmade around the globe. Thebiggest deals have takenplace in the US and UK,followed by Singapore,Japan and Australia. Chinesebuyers have taken advantageof the revaluing of real estateassets in North America andEurope to snap up what looklike bargains in currencyexchange, comparativepricing and yield terms.

Cross-border capital originating from Hong Kong and China

Source: Savills World Research/ RCA

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New York stands outamong world cities asreceiving the largest

share of UHNWI investmentin direct residential property,and it seems set to growfurther as a destinationfor private investment.This is particularly truefor mainstream property,especially in terms of incomereturn. New York fell inrank from one of the mostexpensive to a distinctly“cheap” old world urbancentre after 2007, but onewith significant capital valuegrowth potential.

This has set the scenefor a wave of cross-borderinvestment in the city’scommercial real estate. New

DESTINATION NEW YORKThe Big Apple’s healthy residential and commercial real estate returns

are attracting investors from across the world


Manhattan commercial deals over US$10m (year to Oct 2013)

York is the largest globalreal estate market by salesvolume, a position it hasheld since 2010, accordingto RCA. Much of the wealthflowing into New York isfrom foreign sovereignwealth funds and privateindividuals. The biggestforeign investor in New Yorkreal estate in recent yearshas been Zhang Xin, throughher company SOHO China,which has spent more onManhattan real estate thanany international investorin the last three years.Pension funds from Koreaand Canada have also beenparticularly active, while theKuwaiti sovereign wealthfund is part of a consortium

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of investors behind the hugeHudson Yards scheme.

International lenders havebeen active too, but theirprofile has changed. Pre-crunch, the big propertylending banks came fromIreland, Switzerland andFrance. Today the majorplayers are from Germany,China and Hong Kong.Although smaller by

monetary volume, some ofthe most significant flows ofprivate capital by numberof transactions into the UShave been into residentialreal estate. Foreign nationalsaccounted for $68.2 billion,or 6.3%, of the $1.08 trillionspent on US residential realestate between April 2012

and March 2013, accordingto the National Associationof Realtors. Chinese buyersare increasingly common— they grew from 5% ofall international residentialbuyers in 2007 to 12%in 2013. Aside from theChinese, notable buyinggroups in the top tiers ofthe New York residentialmarket include Russians,and Eastern Europeans andwealthy Latin Americans.

US tax policy is still cited asa major hurdle to internationalinvestors, both in theresidential and commercialsectors. Proposed changeswould set the scene forsignificantly more investmentwaiting in the wings.




WORLD TRENDS INREAL ESTATE

Asia and Africa with their high concentrations of UHNWIs willplay an increasingly important role in real estate investment

Among thoseUHNWIs who havemade their money

from real estate, there isa higher concentration ofvery high levels of wealthin Asia and Africa than inthe Americas and EMEA.The higher proportion ofnear-billionaires in theseregions points to thelikelihood of continuedgrowth in UHNWI numbersand, consequently, to theirincreasing importance inthe sphere of global realestate investing.

The appetite for realestate as an investmentclass by Asian individualsin particular means that thephenomenon of privatelyinvested real estate willcontinue to grow as thenumber of Asian UHNWIsgrows.

Our analysis suggeststhat this, in turn, will

mean higher activity indevelopment land andprivate cross-borderactivity generally.

There is a big question asto whether private wealthcan continue to grow as aproportion of all big ticketreal estate investment. Itwould seem that it hasplayed a bigger part in thepast within the totality ofcross-border deals.

Given that the numberof UHNWIs is due to growfastest in Asia, it is theinvesting preferences andattitudes of this groupthat will determine howthis trend develops infuture. Because of Asia’sgreater propensity for bothreal estate purchase andoverseas investment inreal estate, we expect theproportion of private wealthparticipation in cross-border deals to grow.

Private wealth as a proportion of allreal estate investment


Wealth distribution within the UHNWI populationwho made their money in real estate


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THE APPETITE FORPRIVATELY INVESTEDREAL ESTATE WILL

CONTINUE




SUMMARY ANDOUTLOOK

GROWTH

• Private wealth has increased andchanged the nature of real estateinvestment since the US financialcrisis took hold.

• It has been an important driver ofglobal real estate markets, and it isset to become more important.

• Cross-border real estateinvestment by the ultra-wealthy iscurrently lower than that fromcorporate and institutional buyers,but has been growing in recentyears – and is set to grow further.

• Private wealth is different tocorporate and institutional moneyin terms of target returns, sectors,jurisdictions and time scales. Thismeans that it can out-competeconventional funding sources oncertain propositions.

• In recent years there has been atendency for UHNWIs to focus ontrophy properties, including moreresidential and niche propositions.

• We anticipate that some UHNWIswill start to move away from the“safe-haven” store of wealthinvestments, intended primarilyfor capital growth and wealthpreservation and instead beginseeking more productive, long-termincome-producing positions.

NEW MARKETS

• Real estate investment has beenfocused on cities rather than wholecountries. This is true for bothprivate and corporate money.

• These now fully invested in citieslike HK, NY, Singapore and Londonmay extend their search to othertypes of asset in future. This wouldbenefit real estate markets.

• Only the US cities with long globalreach: New York, Miami and LosAngeles will see significant cross-border activity. The main recipientsof private cross-border investmentare European markets rather thanUS ones, but Chicago, SanFrancisco, Seattle, Washington andBoston should be on a “watch” list.

• The US market is large andmature but overwhelminglydomestic. Its growth prospects willbe diminished because AmericanUHNWIs will grow more slowly thanthose of Asia.

• European real estate markets arethe largest and attracted globalinward investment, relative to size.Europe is poised to attract moreprivate property investors who willbe increasingly familiar with theregion’s strong offering in cityproperties and well-knownresidential destinations.

OPPORTUNITY

• Private wealth may perhapsbe seen as more adventurousgeographically and across sectorsand maybe less adverse todevelopment risk – given the rightreturns. It has ideal characteristicsfor the development of new marketsand new products.

• Most future growth in UHNWInumbers will come from Asia.Asians are more likely than anyother group to invest in realestate, to have made their moneyfrom it.

• The “retreat” and leisure-destination markets are still youngand very small in Asia, but could beset to explode as UHNWI buyersincrease and mature.

• UHNWIs will be competing moredirectly with institutional investors infuture but, being more opportunisticand less constrained by formalcriteria, are more likely to becomepathfinders and pioneers thancorporate investors.

• We anticipate that in the future agrowing proportion of large realestate transactions and cross-border transactions will involveprivately wealthy investors andbecome more diverse in natureas a result.





PLEASE CONTACT US FORFURTHER INFORMATION

YOLANDE BARNESSavills World Research

+44 (0)20 7409 [email protected]

PAUL TOSTEVINSavills World Research+44 (0)20 7016 [email protected]

LUCY GREENWOODSavills World Research+44 (0)20 7016 [email protected]

SAVILLSWORLD RESEARCH

TEAMSavills World Research monitors, reports and

comments on the world’s real estate markets, usingunique methodologies to build a true picture of

the global market place.Innovators and recognised thought leaders, the teamdraws on Savills local market intelligence and sets it

into a global context.Regular commentators in the press, we producea range of research publications and undertakebespoke client research projects across a wide

range of geographies and sectors.


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