Private capital fuels growth of global real estate mega deals

By Paul Norman - Wednesday, March 07, 2018 0:30

The market for mega deals is changing rapidly with private investors fuelling the boom in commercial transactions valued at US$1bn and above, according to Knight Frank’s latest Wealth Report.

According to Knight Frank’s latest Wealth Report, the past five years have seen a 300% increase in total number of US$1bn plus deals per annum, moving from US$5bn in 2012 to a total of US$20bn in 2017.

Private investors now make up 43% of  transactions, greater than the 31% accounted for by institutional investors

Asia has emerged as the predominant source of demand, accounting for just under two thirds of purchases by volume. Companies owned by private individuals made some of the world’s largest purchases last year, including the US$5.1bn purchase of The Center office building in Hong Kong by a consortium of domestic investors.

KF said the allure of investment at this scale is clear.

"Buildings that can command mega prices are landmarks, defined by world-class architecture or instantly recognisable silhouettes, and famous in their own right. Above the billion-dollar threshold, most transactions involve office buildings.

"Broadening the criteria to include deals worth US$500m-plus, the same trend of rising investment is evident, with purchases growing from $21bn in 2012 to US$53bn in 2017. The mix of assets is slightly broader; however, 81% of last year’s deals above this level were for offices."

The Wealth Report identifies that appetite for private investors to buy overseas remains solid, with a third of respondents planning to invest outside their domestic market in 2018.  This means that the split between domestic and overseas property investment will continue to rebalance as investors diversify their portfolios.

William Matthews, Commercial Research Partner at Knight Frank, said:  “We predict that the volume of US$1 billion-plus and US$500 million-plus deals will continue to grow as the real estate asset class matures globally and investors, ranging from institutions to sovereign wealth funds, gradually ratchet up allocations.

"Importantly, private investors are often free of the timing constraints of commercial rivals, meaning their patient capital can wait for the right opportunities to acquire the world’s best real estate.”

The report can be seen at: http://www.knightfrank.com/wealthreport

pnorman@costar.co.uk

 

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