The Wealth Report 2024: Old rulebook for real estate, wealth no longer applies

March 7, 2024

Knight Frank's The Wealth Report 2024 The Next Chapter

Liam Bailey, Knight Frank’s global head of research and editor of The Wealth Report, distills the findings from this year’s edition.

This year will see the long-awaited downward pivot in interest rates.

While cuts are on the horizon, rates will remain above their recent ultra-low levels, according to Liam Bailey, global head of research at real estate consultancy Knight Frank and editor of the firm’s Wealth Report.

“This, together with increasingly complex geopolitics, tech and climate disruption means that for real estate investors, the old rulebook no longer applies,” Mr. Bailey said.

“As we explore throughout this year’s report, it’s time to turn to the Next Chapter,” he said referring to the Wealth Report’s 18^th edition.

Wealth creation returned

That shift in outlook for interest rates, the strong performance of the U.S. economy and a sharp uptick in equity markets helped wealth creation globally, Mr. Bailey said in his distillation of the report.

At the end of 2023 there were 4.2 percent more UHNWIs than a year earlier, with nearly 70 very wealthy investors minted every day, taking the global total to just over 626,600, the report found.

Growth was led by North America (up 7.2 percent) and the Middle East (6.2 percent), with only Latin America seeing its number of wealthy individuals fall. While Europe lagged in terms of new wealth generation, the continent remains home to the wealthiest 1 percent.

Liam Bailey

Wealth prospects

Despite slower global growth this year, the revival of wealth creation looks set to remain with us.

“We confirm our expectation that the number of wealthy individuals globally will rise by 28.1 percent during the five years to 2028,” Mr. Bailey said.

“Our model points to strong outperformance from Asia, with high growth in India (50 percent) and the Chinese mainland (47 percent), in particular,” he said.

Generational shifts in wealth

With changing priorities towards investment outcomes between generations, Knight Frank took a look at the implications for investment behavior.

“Attitudes to wealth creation among female Gen Z-ers suggests the 38 percent rise in female UHNWIs over the past decade is set to keep building,” Mr. Bailey said.

Cities slug it out

With wealthy individuals better connected and more willing to move than ever before, emerging wealth hubs are responding by dishing out incentives to challenge the supremacy of established global gateways.

“We report on Paris’s attempts to lure financiers from the City of London, London's own shift to the left, Geneva’s search for something more than stability, how Milan and Miami are feeling the pressures of success, Hong Kong and Singapore’s respective plans to be the home of Asia’s new elite and, finally, how developers in New York and Los Angeles are betting on a branded future,” Mr. Bailey said.

Residential prices on the up

Despite the sharpest ever uptick in global interest rates, Knight Frank confirms that, while sales volumes took a hit in 2023, capital values continued to grow by 3.1 percent across the world’s leading prime markets.

Asian markets led the charge, followed by those in the Americas.

“Our analysis confirms where buyers will need to dig deepest – Monaco and Aspen – and which prime markets are offering value right now,” Mr. Bailey said.

The future of residential

More than a fifth of global UHNWIs are planning a purchase in 2024, Knight Frank research unearthed.

“Helpfully, we provide our house price forecast for 25 of the most in-demand markets, led by Auckland (+10 percent) and Mumbai (+5.5 percent),” Mr. Bailey said.

“While the pace of rental growth will slow this year, our prime rent forecast points to some notable outliers, with Sydney leading at 12 percent,” he said.

“We round up the big themes impacting global markets – with politics replacing inflation as the leading market risk – and outline how AI, wellness and climate concerns will shake up the luxury development sector.”

A slower 2023 for commercial ...

It was a challenging 2023 for global commercial real estate (CRE), with investment volumes falling by 46 percent as investors grappled with elevated interest rates and higher debt costs, per the Wealth Report.

Despite a tougher environment, private investors remained the most active global buyers for the third consecutive year, taking a record 49 percent share of this $698 billion market, with the living sectors, industrial and logistics, and offices their top picks.

Sets the scene for a recovery

With almost a fifth of UHNWIs planning to invest in CRE this year, the Wealth Report examined where the money is likely to come from – Middle Eastern and Asian investors have the strongest appetite – and where it is likely to be directed, with the living sectors and healthcare leading.

“To aid investor decision-making, our sector outlook covers English vineyards, much needed lab space, secondary offices in the best locations, and those sectors benefiting from structural tailwinds including “beds, sheds, eds and meds,” Mr. Bailey said.

Finally, with rates on their way down, Knight Frank sees debt returning to form part of investor strategies.

Sustainable trends in focus

With a 27 percent chance that 2024 will see the average rise in global temperatures surpass 1.5°C compared with the pre-industrial era, and with the richest 1 percent of the global population responsible for more emissions than the poorest 66 percent, it is good to know that almost two-thirds of UHNWIs are attempting to reduce their carbon footprint, per Mr. Bailey.

“We assess the key sustainability strategies being employed by the world’s wealthy as they assess CRE investment,” he said.

AI in reality

The AI investment wave carried the rebound in equities markets last year: is it about to do the same for real estate?

“We report how record investment in AI-driven tech will impact on demand for specific use types in very targeted locations,” Mr. Bailey said.

Beyond the direct requirements from the technology, the report considers how AI is being harnessed to uncover market opportunities at scale, highlighting a project that saw AI identify previously overlooked land capable of accommodating more than 100,000 homes.

Farmland

With farmland forming the biggest investable real estate sector, at least by size, comprising 5 billion hectares, or more than 40 percent of the globe’s landmass, investors are asking it to deliver ever more.

While food production unsurprisingly leads investor objectives, latent environmental benefits are rising in importance, with $30 billion earmarked by investment funds for climate-related outcomes.

“Our investigation reveals a sector grappling to place a value on radical new uses,” Mr. Bailey said.

Luxury collectibles on pause

Despite record-breaking individual sales in 2023, a surge in financial market returns contributed to a shift in allocations impacting on luxury asset value.

The Knight Frank Luxury Investment Index fell 1 percent over the year, pulled down by falling values in rare whisky (-9 percent), classic cars (-6 percent), handbags (-4 percent) and furniture (-2 percent).

“While art (+11 percent), jewelry (+8 percent) and watches (+5 percent) helped offset some of these falls, our assessment reveals a need for an ever more discerning approach from investors, with significant volatility by sub-market,” Mr. Bailey said.

Please click or tap here to read Luxury Roundtable’s detailed summary of The Wealth Report 2024

Please click or tap here to download the 18^th edition of Knight Frank’s Wealth Report 2024

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