2016

OverviewIt is clear that 2016 will be a remarkable year in terms of political and economic fluctuations, making it harder than ever to predict investor sentiment and the resulting wealth flows.

Knight Frank is fortunate in being able to draw not only on a network of over 417 offices, but also the views of thousands of active clients and investors, together with the expertise of our agency and consultancy teams, including those advising on alternative property sectors, such as healthcare, agriculture and student housing.

For our 10th edition we examine the attitudes of the ultra-high-net-worth individual, wealth flows and the cities dominating the world’s property stage. We have also identified the world’s private-jet hotspots, the best connected cities and investments of passion, such as English Premier League football club ownership.

Over the last ten years we have had many influential contributors to the report including, Jim Rogers, Richard Branson, Massimo Ferragamo and Dr Pippa Malmgren. This year we interview the distinguished Lady de Rothschild, who talks about the Coalition for Inclusive Capitalism.

Our Attitudes Survey adds depth to our analysis by delving deep into the views of the wealthy regarding investment risks and opportunities. Our coverage of the world’s premier luxury residential markets has been expanded to include 100 cities and second home destinations. And our focus on investment opportunities covers the world.

The scope and the ambition of the report is reflected by Knight Frank’s growth. In the last

year we have formed a strategic residential relationship with Douglas Elliman covering New York and the key luxury home hotspots in the US. We have also established new offices in Chamonix, Provence, San Remo, Venice, Sardinia, Marbella and Taipei, as well as opening five new offices in the UK.

The reach and influence of The Wealth Report continues to grow. We hope you find our latest findings and forecasts both informative and inspiring.

If we can provide you with further research or advice we are of course happy to help and look forward to hearing from you.

Attitudes Survey This year’s Attitudes Survey was conducted in conjunction with ultra-wealth intelligence consultancy Wealth X and is based on the views of around 400 of the world’s leading private banks.

One of the most interesting finings of this year’s Survey was the fact that wealth creation will increase at a slower rate in the next 10 years. This is due to several reasons, including global slowdown in economic growth particularly in China, succession and inheritance issues and wealth taxes.

Wealth management has taken an interesting route over the past ten years. The last decade has witnessed more High Net Worth individuals getting personally involved in managing their own wealth and making key investment decisions. 87% of the private banks surveyed reported that their clients are taking on a more active role in managing their own wealth. In addition to that, a large segment of High Net Worth individuals are

involving the next generation at a young age as part of their succession planning. Many of them were concerned that when the time comes, the next generation will not be prepared to manage or create wealth for the family. Involving them with the wealth management at an early stage seemed like the best solution.

Women have also played a significant role in wealth management over the past ten years. More women have been involved in key management decisions in the family businesses, where we see a massive 92% in the UAE followed by 84% in China and 61% in the USA.

As much as creating and managing wealth is important to high net worth individuals, giving back to society is becoming as important .Many high net worth individuals feel they have a responsibility to inject part of that wealth into society. 67% of those surveyed said that philanthropic activities have grown over the past ten years and 80% reported that they will increase further in the next years.

Taking a closer look at the portfolio of high net worth individuals we find that residential property makes up a good 24% while commercial property makes up 11% of property investment. Over the next decade 40% of high net worth individuals will increase their allocation to residential property, where 30% are likely to consider a purchase in 2016. The reason behind this is many high net worth individuals view property investment as a safe haven for funds, one that gives them an opportunity to sell in the future and diversifies their portfolio.

Global Wealth Trends According to the New World Wealth Data, the number of high net worth individuals has increased 61% over the past decade from 116,800 in 2005 to 187,500 in 2016.

While the global population of UHNWI will continue to expand, its pace will be significantly lower than the previous ten years.

Over the next ten years, Asia will have the lion’s share of the global wealth expansion with a 66% increase in the number of high net worth individuals versus a 27% increase in Europe.

The past ten years have also witnessed an increase in the number of Asian high net worth individuals. Azerbaijan recorded a massive 444% increase in its ultra-wealthy population, followed by India with a 340%. In the Middle East the UAE headed with a significant 110%. The numbers are lower in the US and Europe with a 39% in the UK and a 32% in the US. This is mainly due to the economic downturn witnessed over the past decade, especially in the Eurozone where there was a significant depreciation of the Euro against the dollar. This has rendered the net worth of individuals in Europe lower when measured in dollars.

Wealth Movements The past decade has seen remarkable growth in cross – border investment by individuals with property forming a significant part of the global wealth story. Looking at inward investment, China has seen a notable growth of 500% over the past ten years, followed by Brazil with 294%. In Europe, Russia’s inward investment s increased by 111%, followed closely by Italy with a 110% and finally UK with a 71%. This movement of capital has urged governments to tackle issues such as tax transparency, which resulted in considerable improvements in some locations such as Cayman Islands and Luxemburg.

As we take a closer look into wealth movements of high net worth individuals it is imperative that we highlight the cities that matter the most to them; whether to invest, live, educate their children or grow their business and network. On all measures, London and New York have taken up the best spots, followed by Singapore and Hong Kong in third and fourth place. The Middle East got a share of UHNWI preferences, with Dubai coming in 6th place (jumping 3 places form 2015 rankings).

Prime Residential Property The value of the world’s leading prime residential property markets rose on average by 1.8% in 2015, according to results from our unique Prime International Residential Index (PIRI). Over 66% of the PIRI 100 locations recorded flat or positive price growth, compared with 62% in 2014.

Vancouver leads the rankings with prices accelerating 25% during 2015. A lack of

supply, coupled with foreign demand spurred on by a weaker Canadian dollar, explain the city’s stellar performance.

In Europe, Munich, Amsterdam, Monaco and Berlin stood out as top performers, recording price growth of 12%, 10%, 10% and 9% respectively in 2015. Despite areas of growth, the world’s emerging markets are no longer the shining beacons they were two to three years ago.

The US Federal Reserve’s recent rate rise, the resulting strong dollar and the collapse in commodity prices all help to explain why Buenos Aires (-8%) and Lagos (-20%) are located at the bottom of the PIRI 100.

Within the Middle East and North Africa (MENA), Dubai saw a -6% drop in the price of prime residential property. Elsewhere in the region, prime property prices in Riyadh maintained their stability, while Abu Dhabi and Qatar saw declines of -2% and -3% respectively.

Commercial Property During the past decade the commercial real estate landscape has transformed, now neatly encapsulated in one word – globalisation.

At the bottom of the real estate cycle in 2009, total investment into global office, retail, industrial and hotel properties stood at $ 216 billion, according to data from Real Capital Analytics (RCA). Seven years on and volumes stood in excess of $ 700 billion.

In the context of private wealth, the proportion of private investment in commercial space also remarkably increased from $54 billion in 2009 to $178 billion in 2015.

Looking inward and into the region, data from Knight Frank’s 2016 Attitudes Survey conducted in conjunction with ultra-wealth intelligence consultancy Wealth-X, reveal that commercial real estate is expected to become an established component of the investment portfolios of the ultra-high net worth individuals (UHNWI’s) from the Middle East and North Africa (MENA) region over the next decade.

While 82% of UHNWI’s from the MENA region have invested in residential property over the past decade, only 53% are expected to allocate funds to the asset class over the next decade. Responses from MENA reveal a growth in allocation to offices from 41% between 2005 & 2015 to 53% between 2015 & 2025.

We also see the emergence of warehousing and logistics as a key element in UHNWI’s real estate portfolio over the next decade, with 32% revealing they would invest in assets within the sector. These figures reveal that despite the recent decline in oil prices and the slowdown in global trade and commercial volumes, UHNWI’s are committed to the growth of businesses and the industrial, logistics and transport sectors over the next decade.

In terms of location, total cross-border investment from Middle Eastern capital into

commercial properties focused on the major global gateway cities of London, Paris, New York and Sydney. The availability of diverse investment products (e.g. REITs) in these locations has made property more accessible to a wider range of investors, while the high level of market transparency and diverse expertise across these markets enables private investors to overcome their knowledge gaps.

Luxury Spending Trends The value of Knight Frank’s Luxury Investment Index (KFLII) increased 7% in 2015. The Index, which tracks the performance of 10 investments of passion, reveals that classic cars (+17%) continue to top the league.

Contemporary and modern art performed particularly strongly this year, with Picasso’s Women of Algiers setting an-all time auction high of USD 179 million.

Despite uncertainties in economic conditions, the appetite for wealthy collectors remains robust as individuals turn to tangible investments such as paintings, which are likely to appreciate in value as opposed to other investments. Seeking new fields to capitalize on found a lot of wealthy entrepreneurs and business people investing in football clubs.

While not everyone may be a fan, an annual Review of Football Finances conducted by Deloitte, reveals there is money to be made in the sector through TV revenues, ticket sales, and commercial revenues (including shirt deals and stadium rights). In terms of location, total cross-border investment from Middle Eastern capital into commercial properties focused on the major global gateway cities of London, Paris, New York and Sydney. The availability of diverse investment products (e.g. REITs) in these locations has made property more accessible to a wider range of investors, while the high level of market transparency and diverse expertise across these markets enables private investors to overcome their knowledge gaps

For full results and analysis from the 2015 edition of The Wealth Report please visit: http://www.knightfrank.ae/wealth-report

Main Findings from the 2016 Wealth Report

124.5%Vancouver saw the largest growth in the price of prime property

Lagos saw the largest decline in the price of prime property

10-year shift in inward investment from Brazil

Ranking of London in the cities that matter the most to Ultra High Net Worth Individuals

Number of Ultra High Net Worth Individuals in North America by 2025

The value of total commercial real estate investment in North America from 2009-2015

10-year shift in outward investment from China

Ranking of Dubai in the cities that matter the most to Ultra High Net Worth Individuals

Growth in the population of Ultra High Net Worth Individuals in Russia & CIS over the next decade (2015-2025)

Most expensive art work purchased by a buyer in Qatar buyer (Paul Gauguin’s, When Will You Marry Me?)

Ratio of Ultra High Net Worth Individuals in India involving their children in their business at an earlier age

Percentage of Ultra High Net Worth Individuals in the Middle East and Africa who perceive succession and inheritance issues as the biggest threat to wealth creation over the next decade (2015-2025)

$300 million

90,247

$1.4 trillion

72%

53%

1,471%

5

91%

294%

-20%

Commercial Property EnquiriesJoseph Morris+971 50 5036 351Joseph.Morris@me.knightfrank.com

UAE Residential Property EnquiriesMaria Morris+971 56 4542 983Maria.Morris@me.knightfrank.com

International Residential Property EnquiriesVictoria Garrett+971 56 783 5523Victoria.Garrett@me.knightfrank.com

http://www.knightfrank.ae/wealth-report