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Survey: Wealth Managers, Private Bankers’ Clients Plan to Maintain or Increase Real Estate Holdings

In a recent survey by real estate services firm Savills and strategic advisory firm Weatherill Consulting, 91 percent of wealth managers and private bankers said their clients plan to either increase or maintain their direct real estate holdings; 87 percent said clients plan to increase or maintain indirect holdings.

The finding supports a trend that has been present in the last six years across investor types: global capital has flood¬ed into real estate, the report says. That was the case across a broad variety of real estate asset types, such as office buildings and residential, and across global regions.

“So the burgeoning interest in the asset class, which was spawned among private clients in the wake of the global financial crisis, shows no signs of abating and looks set to grow,” noted Harriet Davies, the report’s author. According to the experts interviewed in the report, “this reflects a host of economic and social factors at work.”

The climate of the last few years has been one in which identi¬fying the causes of investment movements has been particularly hard: monetary policy has moved in uncharted waters, the global financial system has seen a raft of regulations implemented in quick succession, without pausing to register the effects, and geopolitics have provided a volatile operating landscape, the author explains. “Real estate has proved, in this climate, to be a popular choice, perhaps because it gives a feeling of solidity in a world that is increasingly founded on intangible structures.”

If you look at global investable capital, “there is more being invested in real estate today than there has been in the past,” says Craig Hughes, sov¬ereign wealth fund and UK real estate leader at PricewaterhouseCoopers.

Among high net worth investors in particular, real estate has always been popular, says Yolande Barnes, director of world research at Savills. Land and real estate has historically been a key measure of wealth, and is often the first asset that people acquire with surplus capital.

“You’ve always had this underlying ‘store of wealth’ function of real estate, it’s always been there,” says Barnes. “But since the [global financial crisis] we’ve seen an increasing empha¬sis on income and property is becoming more important as an income generator.”

Hughes adds that real estate investment started to increase significantly once interest rates hit the lows they are at today, driving yields down. “If you look at fixed income returns, then you look at something like real estate, and by its nature there’s a real asset backing it, that provides a lot of security. And even the most expensive deals in London will give you 3 percent—that’s attractive,” he says. There are also inflation hedging and diversification benefits to be considered.

Investment in commercial income-producing real estate hit an inflection point in 2009, according to transaction data pulled for the report from Real Capital Analytics. Real estate suffered heavily in the financial crisis but rebounded more quickly than most would have predicted at the time. Interest rates, on the other hand, continue to languish nearly seven years on.

Zoltan Szelyes, strategies and advisory at Credit Suisse Real Estate Invest¬ment Management, agrees in the report that the current low-rate environment and cor¬responding pressure on private investors to “generate decent returns” is driving high demand for real estate.