This week, property group Knight Frank released its annual Wealth Report, in which the growing role of family offices in the global property market was highlighted. Here are some observations from the report and Family Capital’s own thoughts on property as an asset class for family offices
Asian and Middle East family offices love property
Yes, they’re into direct private investing and venture, but nothing quite gets Asian and Middle East family offices going as property. Just last month, Hong Kong-based family office Junson was reported to be nearing an $800 million US hotel portfolio purchase. OK, it hasn’t been confirmed, but the size of it is enormous and it’s indicative of the popularity of property among Asia’s biggest family investors. Many Middle East family offices might probably like property as much as their Asian counterparts. Family offices like Emirates Investments Group and Al Zarooni Emirates Investments are leading the charge.
The allure of property continues, as they fade for other assets
Any allocation to property is really up to the individual family office. To quantify property as a percentage of a portfolio is near to meaningless as allocation to any asset class will depend a lot on how the family made their money in the first place - and a lot of other reasons as well. Nevertheless, if generalisations can be made, the allure of property for the very rich remains pretty constant, at least compared with some other asset classes. In the last ten years, property has kept its value - and popularity - whereas other assets like hedge funds and bonds have waned.
Commercial property portfolios are now all the rage
Last year, private buyers accounted for 34% of global commercial real estate investment, the highest percentage in ten years, according to Real Capital Analytics, as cited in the Wealth Report. Perhaps some of these wealthier private investors have been inspired by the commercial property portfolio built by Pontegadea Real Estate, an investment office owned by Inditex founder Amancio Ortega. He built it quickly and big - and has set a good example of how to do this for others to follow.
Managing risk is easier with property
Here’s what Anthony Duggan, head of capital markets research at Knight Frank says about risk, property and family offices: “Family offices like real estate because they can closely manage risk. If you buy a FTSE 100 share, you are exposed to many different dynamics. There are far fewer variables when you buy an office in Berlin, and families like that.” Fewer variables and the ability to manage risk will continue to ensure property remains a popular investment choice for many family offices.