As macroeconomic turmoil has roiled financial markets and institutions retreat from real estate, wealthy individuals have become the dominant buying class.
Private investors were the most active buyers for worldwide commercial real estate last year, purchasing $455B in properties, or 41% of the global investment total, according to a Knight Frank global wealth report.
For the first time on record, private buyers’ share of the market eclipsed those of institutional investors, which bought a total of $440B last year, a 28% decline in their investment activity in 2021, the Knight Frank report found. Private wealth from the U.S. in particular is projected to be the most active of those investors this year as well. Private buying activity fell just 8% from last year, by comparison.
“In order to navigate the higher inflationary environment, investors may pivot towards commercial real estate due to its strong growth potential, particularly in assets with indexation,” Knight Frank associate Antonia Haralambous wrote in the report. “Sixty-nine percent of wealthy investors expect growth in their portfolio this year, with confidence driven by asset repricing, perceived value opportunities and an expected economic rebound.”
The hunt for value is evident in which asset classes the investors put money into. Private buyers bought $62.5B of retail properties last year, 9% more than in 2021, and $30.6B of hotels, a 17% increase. Office was the second-most-active asset class, with $84.1B of purchases, a 4% dip from 2021. Private investors spent $194.9B on apartment properties last year, a 13% decline from 2021, per Knight Frank.
Private buyers’ newfound perch atop the CRE investment pecking order reflects the aftermath of the Federal Reserve’s interest rate hikes, which have changed the risk calculus for investing. All-cash buyers were increasingly the last bidder standing for properties at the end of last year, Bisnow previously reported, as lending dried up.