Private capital remains key investor class for property in Yorkshire – Knight Frank

According to Knight Frank’s new Wealth Report 2021, private capital has been undeterred by the Covid-19 pandemic and has continued to invest in commercial real estate across the world.

In the Yorkshire real estate market, private capital in its various guises continues to be one the key investor classes.

Henrie Westlake, head of Knight Frank’s Leeds office, explained: “The key factor is that because private capital is under private control, it enjoys unparalleled flexibility where, when and in what sector to invest. This liquidity is key to its ability to take advantage of volatile markets.

“The strong fundamentals of Yorkshire in terms of amenity, green space, transport and education to name but four, all come together to provide an unrivalled quality of life. As we emerge from the shadow of Covid-19 in 2021, this will be critical as people re-evaluate life and priorities.

“The Yorkshire region will see a resurgence across the logistics, office and residential sectors, all of which are key investment classes for private investment.”

The volume of private capital invested globally was circa US$232 billion – 9% above the ten-year average, albeit down on 2019 levels.

Looking forward, the Knight Frank Attitudes Survey highlights that a quarter of ultra-high-net-worth individuals (UHNWIs) plan to invest in commercial real estate assets in 2021.

Victoria Ormond, capital markets research partner at Knight Frank said: “There are a number of drivers set to shape markets throughout 2021 – the move to safe havens – large, relatively liquid, transparent markets should continue to attract global investment; global travel disruptions also provide opportunity for private investors to leverage understanding and ties to more local markets, which under usual circumstances might face larger competition for assets by institutional investors; ESG – something private investors cannot afford to ignore and the rise of data centres – where there is huge potential for investment opportunities.”

The Wealth Report 2021 also reveals the amount of private capital invested into real estate in 2020 split by sector:

Sector 2020* US$bn 2019* US$bn (for comparison)
Apartments 88.9 124.3
Offices 59.2 89.6
Industrial & Logistics 34.0 48.7
Retail 27.7 43.5
Hotels 13.0 29.5
Senior Housing & Care 7.1 8.8
Residential condominiums 1.9 2.6
Source: RCA *Data provisional

 

Alex James, Partner, Head of Private Client Advisory, Commercial, said: “Commercial real estate provides investors with a relatively high yielding stable income return, the potential for capital value growth and diversification. These are all key drivers in preserving wealth for future generations and protecting against the impact of the global pandemic.

“While the pandemic has impacted the way we live, work and do business, there is renewed optimism in 2021 that as travel restrictions reduce and the rollout of the vaccination programs reaches advanced stages, private capital will look to increase its exposure in familiar markets and focus on sectors with strong long-term fundamentals.”

The US (US$141.7bn), Germany (US$11.1bn) and the UK (US$10.6bn) are the top three countries for private capital real estate investments in 2020* with the majority of countries in the top 10 relying on domestic investment over cross-border investment.

Country 2020* US$bn Domestic investors Cross-border investors 2019* US$bn (for comparison)
US 141.7 97% 3% 227.3
Germany 11.1 67% 33% 15.8
UK 10.6 47% 53% 10.9
Sweden 8.3 100%  – 6.6
France 7.5 95% 5% 11.8
South Korea 6.0 100%  – 4.0
Japan 5.5 92% 8% 10.6
Canada 5.4 99% 1% 7.2
Netherlands 5.4 83% 17% 5.6
China 3.7 99% 1% 5.8
Source: RCA *Data provisional  

 

Knight Frank’s Attitudes Survey shows that the average asset allocation in UHNWIs real estate investment portfolio is as follows:

Q. Which sectors are becoming of more interest? Regional average
Residential private rented sector (PRS) 32%
Logistics 28%
Development land 24%
Offices 18%
Industrial 17%
Healthcare 17%
Retirement 14%
Hotels and leisure 13%
Agricultural 12%
Infrastructure 11%
Data centres 11%
Retail 11%
Student housing 9%
Education 6%