The Top 10 Countries Where Individual Investors are Buying Real Estate
For the first time, private individual investment in commercial real estate has surpassed institutional investment.
Private investors were the most active buyers of global commercial real estate in 2022 with US$455 billion invested, accounting for 41% of total transactions, according to Knight Frank’s 2023 edition of The Wealth Report.
And these wealthy individuals are looking to grow their portfolios, both at home and across the world. The Wealth Report measures the investment activity and sentiment of High Net Worth Individuals (HNWIs), defined as someone with a net worth of US$1 million or more, including their primary residence, and Ultra HNWIs (UHNWIs) with a net worth over US$30 million.
“Whether for the perceived inflation hedge, diversification benefits or as a boon in times of uncertainty … 28% [of HNWIs] will seek to increase their commercial property holdings,” said the report, with 40% of respondents considering investing in commercial property outside their country of residence in 2023 even as economic and financial challenges mount.
While the U.S. dominated investment activity in many regards, London was the top city for cross-border private capital investment in 2022, and offices in the U.K. are expected to be the most targeted asset for private buyers in 2023.
LoopNet highlighted key takeaways from the report, notably where private investors are purchasing the most real estate globally, the strong demand for London offices as a top investment target, and the resiliency of private investors in the face of economic headwinds.
Where Did Private Investors Buy in 2022?
Last year, the U.S. led the pack as the top destination for private capital by a wide margin, with cities such as New York, Dallas, Los Angeles, Miami, Houston, Chicago, San Francisco, Washington, D.C. and Boston being top targets for investment. U.S. cities accounted for 67% of the total global investment volume.
The top 10 countries for private commercial real estate investment in 2022 were:
- United States ($328.3b)
- United Kingdom ($14.6b)
- Germany ($14.6b)
- Canada ($14.5b)
- France ($12.2b)
- Japan ($8.6b)
- South Korea ($7.4b)
- Chinese Mainland ($6.8b)
- Netherlands ($4.9b)
- Sweden ($3.7b)
While inflation remains a concern for many investors in an uncertain economic landscape, some countries stood out as viable locations to place capital. Beyond the U.S., France’s “resilient economy and relatively low inflation levels compared with the rest of Europe,” make it an attractive target, noted the report. Other than the U.K.’s marginal increase of 1%, France was the only other country to see a year-over-year increase in total private investment, up 21% from 2021 to US$12.2 billion. Plus, Paris was the only non-U.S. city to feature in the top 10 cities for domestic private capital placement in 2022.
“The [current] high interest rates play to the strength of private investors. If you are a private investor who has capital, you can just buy everything with equity, and all of a sudden you have less competition.”William Matthews, Knight Frank
In the U.K., London was the top destination for receipt of cross-border private capital, with US$2.5 billion in sales volume. Overall, this accounted for 44% of the total private investment made in the city (the rest coming from domestic buyers) and represented 15% of total global cross-border private investment into cities in 2022.
“When you have these slightly volatile times, people end up going back to what they know, which is key global cities. And Paris and London are markets that almost always remain liquid — you might not always get the same price, but you can always sell property in those markets,” William Matthews, head of commercial research for Knight Frank in London, told LoopNet. “If you want to buy property but are uncertain about the general economic outlook for the next couple of years, you always consider what is going to be a reasonably safe bet. With a good quality office in Paris or London, you’re at the very least always going to be liquid.”
Additionally, as environmental concern becomes a growing consideration for private investors, European cities, including London and Paris, stand out for their high number of buildings that meet sustainability criteria. “You have a lot more buildings to pick from,” said Matthews.
While most of the money spent in 2022 came from private individual investors in the U.S. with US$302 billion invested, investment from U.S. private buyers declined by 3% year-over-year. Among the top 10 sources of private capital last year, investors from France and the Chinese mainland were the only buyers to increase investment activity in 2022, up 27% and 25% from the previous year to US$13.8 billion and US$6.3 billion respectively.
Multifamily residential, office and industrial assets attracted the greatest interest from buyers, with 43% of respondents surveyed in the report saying they’re already invested in office and 40% in industrial assets. Ownership in retail, life sciences, healthcare, residential rentals, data centers and education real estate all increased in 2022 compared to 2021.
“HNWI transactions averaged US$18 million over the past decade.”Knight Frank 2023 Wealth Report
Where and What Will They Buy in 2023?
The U.S. is predicted to remain the top destination for private individual capital this year, followed by the U.K., Germany, Japan and the Netherlands. Investors favor Europe — of the top 10 destinations for private cross-border capital, seven are located in Europe.
Most of the money will again come from U.S. investors, who are expected to account for almost 50% of cross-border transaction volume in 2023. Investors from the United States will primarily be looking to purchase offices in the U.K., Japan and Singapore, as well as industrial assets in Germany, Japan and South Korea, predicted the report. Investors from Singapore, the U.K., Canada, UAE and Switzerland are also expected to be among the most active buyers in 2023.
As high interest rates dictate the current transaction landscape and make acquisitions less feasible, Matthews said cash-flush private investors are gaining an advantage. Without the need for debt to make a deal work, they have an edge over buyers reliant on financing.
“The high interest rates play to the strength of private investors. If you are a private investor who has capital, you can just buy everything with equity. All of a sudden you've got less competition because all of the REITs, institutions and people that use debt effectively step away,” said Matthews.
Office will dominate among the asset classes, especially in the U.K. More than 40% of total private individual cross-border capital is forecast by Knight Frank to target the office sector. Private buyers purchasing U.K. offices will typically look to invest US$2 million to US$17 million, which the firm said would buy about 15,000 square feet of space depending on the location.
“We forecast U.K. offices to be the top target for private investors in 2023, with offices in the U.S., Germany, Australia and the Netherlands also likely to see robust demand,” said the report.
Matthews said the high vacancy rates seen in much of the U.S. and the fear over office obsolescence after COVID isn’t deterring private investors from buying these properties, especially in Europe.
“There might be high vacancies in some cities, but this isn’t necessarily the case for all of Europe — in fact, there are a lot of cities where it isn’t the case at all,” he said. “When you're looking at a top tier or good quality space that's been delivered in the last five to 10 years, the vacancy rate there is pretty low and we are still seeing good rental growth, and that’s the market these people are targeting."
Other top opportunities for U.K. investment lie in supermarkets and logistics, said Alex James, head of U.K. private client advisory for Knight Frank, in the report.
“Especially [supermarkets and logistics properties on] larger lots [and] with good covenants. The fundamentals are still strong and tie in with the supply chain for both online and in-person consumers,” he said. “Online sales are anticipated to grow by an additional 31 billion pounds (US$40 billion) by 2026. Over the next five years, this could result in additional demand for roughly 10 million square feet of last-mile fulfilment space.”
Industrial and residential assets follow office in terms of Knight Frank’s anticipated demand from private individual cross-border capital, each with 19% of sale volume, followed by retail at 12% and hotels at 7%.
Private investors are also interested in healthcare, with that sector ranking as the top “wish list” item of interest for one-third of UHNWI investors in 2023. Industrial, office, multifamily and hospitality all follow, rounding out the top five sectors of interest.
But while the healthcare sector is the most desirable and attracts investors for its long-term stability, especially with Europe’s aging population, it is difficult to secure healthcare assets, said Matthews.
“It’s a good market in the sense that the returns are strong in that they’re stable and assured, but there isn't an abundance of stock you can buy,” Matthews said. “It’s all well for everybody to say ‘we're going to buy into healthcare,’ but it’s very hard to do because the assets don't always exist. And if they do, they're fought over. Offices [on the other hand] are all over the place and everyone understands them, so they’re very easy to [buy].”
The report also pointed to strong demand for the residential rental sector, leisure, hotels, student housing, life sciences and data centers. It noted that “more specialist sectors are often countercyclical and benefit from structural drivers which typically prove popular with investors, especially in times of uncertainty.”
