Alistair Elliott on the growing power of private capital
From castles and country estates to city office buildings, apartments and hotels, wealthy individuals the world over have long looked to property to both protect and nurture their family assets. But the rise of the ultra-high-net-worth individual (UHNWI) – particularly in Asia – means that private money now plays a bigger part in real estate investment than ever before.
“We’ve been tracking the growing engagement of private wealth with real estate for about 15 years, and approximately a third of property transactions – both commercial and residential – around the world now involve private capital,” says Alistair Elliott, senior partner and group chairman of 125-year-old advisory firm Knight Frank and a man with nearly four decades of industry experience.
“That’s a revolutionary shift. There was a time when the landed aristocracy were the only private individuals of real interest to firms like Knight Frank, but now the profile has become much more mobile and disparate and includes all kinds of entrepreneurs and business people who have found a way of creating wealth.”
A privately owned, global real estate consultancy, Knight Frank advises more than 25% of the world’s billionaires on property strategy. Whether acquiring luxury residences in Europe or making commercial investments in Asia, Australia and the USA, its private office team handled over 100 private client transactions in 2020 and has an unrivalled 50% share of the London super-prime residential market.
It’s a trend that the pandemic has further accelerated, as Knight Frank’s latest annual Wealth Report shows. While institutional investment in real estate fell by 6% in 2020, private capital deployment remained strong, 9% above the 10-year average for the same period.
What’s more, a quarter of UHNWI (those with assets of at least USD30 mn) surveyed intend to invest in property during 2021. And while North America still boasts the largest population of UNHWIs, both Asia and Africa are faster growing, with numbers up by 12% and 5% in 2020, compared with 4% in North America. Asia is also home to 36% of the world’s billionaires, a greater proportion than any other region.
Private investors have motivations and priorities that are distinctly different from institutional capital, he adds. “Institutional investing is generally quite mechanical. It’s about requirements and governance and clearing the right hurdles. Private capital is much more likely to be driven by personal desire, whether that’s for a trophy hotel in Dubai or New York or a re-wilding project in Scotland.”
Re-wilding – which endeavours to reverse the damage caused by intensive farming and deforestation by rebuilding and protecting natural landscapes and ecosystems – may sound a long way from the bricks and mortar of the built environment. But it is increasingly popular with private investors looking to pass on a healthier planet to their grandchildren. According to the Wealth Report, 49% of family offices are more interested in ESG investing now than they were 12 months ago, and 22% of private wealth advisers surveyed cite ESG as a wealth-creating opportunity for their clients.
With 40% of global carbon emissions coming from the built environment, firms such as Knight Frank have a responsibility to reduce their own emissions as well as advising their growing band of eco-conscious private clients on sustainable investing, he adds. “The ESG agenda is really gathering momentum and is right at the front of everybody’s minds now. We have to be able to accommodate it ourselves.”
The firm has a deal to provide 100% renewable energy for the properties it manages, and the success of remote working during the pandemic means that business travel will remain at a lower level than before – positive for both the planet and for leadership productivity. “There will be less business travel – I used to go to Singapore two or three times a year for our Asia Pacific country-head meetings, and so did 20 or so other people. That’s a lot of business-class flying.” In future he reckons one trip a year will be sufficient, with the other meetings done remotely by video call.
Knight Frank predicts that the number of UHNWIs will rise by 27% between 2020 and 2025; private interest in property is likely to continue growing accordingly. So, what trends does Elliott see in the market at present?
“Businesses in the food, hospitality and leisure sectors will make great platforms to invest in over the next two or three years. So many businesses that were doing well have been stopped in their tracks.
“I also think retail will reach its correct pricing in the next 12 months and there will be great opportunities to redevelop high streets and create mixed-use developments.
“And offices still provide good income. The office sector will survive and if you have a long lease with a solid income, the yield that offers compares very favourably to other investments around the world.”
The sector may go through cycles as people’s habits change, he concludes, but the fundamentals remain strong. “Real estate is part of everyday life. It’s intrinsically linked to the dynamic nature of people. That’s what makes it so exciting and it’s why I have always enjoyed what I do.”
Alistair Elliott is a LandAid Trustee; a member of the BPF Policy Committee, and a regular contributor to advisory committees and member of judging panels. He frequently writes for key property media columns, as well as attending a range of broadcast interviews around the globe.
1983: Joins Knight Frank’s graduate scheme
1995: Joins the equity partnership
2006: Becomes head of commercial, Knight Frank
2013: Becomes senior partner and group chairman, Knight Frank