The Wealth Report 2023: beyond 'permacrisis' (2024)

Beyond 'permacrisis'

On Wednesday we released The Wealth Report 2023, the 17th edition of our unique analysis of private capital and its impact on real estate markets worldwide.

There's a lot to unpack from a turbulent twelve months. The Ukraine crisis fuelled the European energy crunch and supercharged inflation that was already surging. Central banks responded with the sharpest upward movement in global interest rates in history, leading to economic conditions that Collins English Dictionary neatly dubbed “permacrisis”.

Significant risks remain for the global economy. Inflation in major economies is above target. Interest rates are still rising. Consumers are facing a serious cost-of-living crisis. But in this year’s report, we argue that investors should look beyond these risks. A peak in interest rates is approaching and we believe that market sentiment will shift quickly. Investors need to be well placed to take advantage of the very real opportunities emerging across global real estate markets.

Wealth creation resumes

The majority of Ultra High Net Worth Individuals, those worth at least $30 million, saw their wealth decline last year amid the challenging conditions, the report reveals. Collectively, their wealth shrank 10%, equivalent to about US$10.1 trillion.

Europe was at the epicentre of the crisis and it shows. Wealth held by European UHNWIs fell 17%. Africa demonstrated the most resilience with only a 5% drop. In a sharp reversal, however, seven in ten wealthy investors expect growth in their portfolio this year, with confidence driven by asset repricing, perceived value opportunities and expectations of an economic rebound.

This newly minted wealth will be put to work. Investors are targeting capital growth (31% of respondents), capital preservation (26%) and income generation (23%). Expect increases in investment allocations. Almost a third of investors say they will look to property investments to provide an inflation hedge and diversification. A cautious approach will see 29% of investors reduce debt volumes.

Property seeking private investors

Expensive debt and heightened uncertainty saw real estate investors retreat in the second half of last year. Institutions cut real estate investment by 28% over the course of the year. Private capital was less defensive, dropping only 8% and accounting for a record 41% of the US$1.1 trillion committed by all investors. London took the biggest share of cross-border investment (15%), followed closely by Singapore.

During the year ahead, 19% of UHNWIs intend to invest directly into income-producing property, with 13% set to take the indirect route. Healthcare is the most in-demand sector, followed by logistics, offices and residential. Our forecast for cross-border allocations suggests that offices will lead in the year ahead, with London the top target. US investors will provide the firepower for almost 50% of cross-border volumes in 2023. Strong demand will also come from Singapore, the UK, Canada, the UAE and Switzerland.

The drivers of luxury residential markets

Average luxury house price growth slowed to 5.2% last year, our Prime International Residential Index reveals. Pent up demand in the wake of the pandemic continued to fuel activity, however, and 17% of global UHNWIs purchased a home in 2022, making it the second strongest year on record. Some 85 of the 100 markets we track saw positive price growth, led by Dubai (44%) and Aspen (28%). At the other end of the ranking, markets that led through Covid-19 saw big reversals – including New Zealand’s Wellington (-24%) and Auckland (-19%).

Wealth preservation, hybrid working and early retirement themes supported resort markets, with sunny (up 8.4%) and ski (8.3%) locations outperforming average prime market growth during the year.

At the very top of the market, the number of super-prime (US$10 million+) sales in 2022 slipped against the 2021 total, although it remained 49% higher than in 2019. New York, Los Angeles and London led the pack in terms of numbers of sales. The even more rarefied ultra-prime (US$25 million+) market was dominated by London and New York, with the former seeing the highest number of sales since 2014.

While the proportion of UHNWIs set to buy residential property in 2023 (15%) is down compared to last year, the high share of cash purchases (49%) will cushion the impact of higher rates, supporting prices. Of the 25 cities we provide forecasts for, we expect 15 to see price growth this year. Dubai leads at 14%, with a huddle of others expected to see rises of 3% to 5%. Supply – a constraint on the market since the beginning of Covid – will ease as UHNWIs rationalise their portfolios, which now average 3.7 homes.

And much, much more...

In this year’s packed edition, we also to introduce you to a global mobility boom, a luxury collectible investment surge, ESG-compliant wild venison, aquaponic trout, surfing tech millionaires in Portugal, defiant NFT investors ploughing US$1.6 billion into Bored Ape images despite a 50% price correction, a hopeful plea for “less speculation and more substance” in crypto assets, and a fecund range of natural capital investment opportunities. Dive in here.

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