Amancio Ortega, the founder of the well-known retail company Zara and the richest man in Spain, last year expanded his total portfolio of assets in the commercial real estate market, acquiring at least 10 properties in North America and the UK worth more than $2 billion.
According to Knight Frank's Wealth Report 2023, Ortega is not the only super-rich investor who is taking advantage of the shrinking real estate markets around the world to acquire promising assets. A lot of private investors and international funds are actively looking at all markets today, looking for profitable offers with potential for growth.
During the pandemic, the weakest sector was the market segment related to commercial real estate. When the coronavirus began to recede, it became clear that in the future companies would begin to actively return to normal operation, moving away from the remote employment scheme. They will need commercial facilities, new and old, a huge demand is rapidly forming, which will pull prices up.
Realizing this, investors began to actively buy up commercial properties with the expectation of future profits. Today, against the background of inflation, rising interest rates and many other crises in the global economy, we see that residential real estate is already beginning to weaken as a market. She is only at the beginning of this path, she has yet to fall in order to rise again. However, many wealthy investors and companies are already starting to make investment plans for such assets.
However, not all types of investors look at the events with the same enthusiasm. Using the example of commercial real estate in the USA, it is easy to notice that institutional investors, banks first of all, have even reduced the shares of their assets in the markets of offices, logistics facilities and rental housing. Now all their assets in value do not exceed $1.1 trillion. The reason for such investors lies in rising interest rates, which leads to defaults.
Banks, rising interest rates and defaults in general create an interesting situation today. A fresh example with the American Silicon Valley Bank went bankrupt precisely because of mortgage bonds, which became a source of losses due to the rising key rate. In general, such investments in weak markets are not for everyone. Super-rich private investors have the most freedom, as they have the minimum number of parties to whom they need to report. If they have such a need at all.
Wealthy individuals, family investment enterprises and private companies are in a better position, as they are burdened with fewer obligations and can afford to build longer investment horizons. Last year, such investors spent a total of $ 455 billion on commercial real estate on the world market, becoming the most active category of investors.
A bank or an investment fund, in turn, operates in quarterly and annual segments. They can't, for example, just buy mortgage bonds for 10 years and keep them with them until maturity. Exactly the same as they cannot earn money for years on the rental of residential or commercial facilities. Their funds are depositors' deposits, which should always be ready for withdrawal.
However, there is no denying the fact that even super-rich people, on average, have started spending less on investments. The pent-up demand after the retreat of COVID-19 resulted in exceptionally good indicators for global real estate markets in 2021. However, it began to gradually decline by the end of 2022, eventually falling by 8%. On the other hand, deposits from institutional investors decreased in volume by 28 over the same period.
It makes sense to say that the further strengthening of the role of super-rich frequent investors will occur not due to an increase in their number in the real estate markets, but due to the enthusiasm of those individuals who are specifically interested in expanding their portfolios.
The example of 86-year-old Amancio Ortega, which was discussed at the beginning, clearly illustrates what is being discussed. Last December, he purchased a luxury residential high-rise in Seattle for about $300 million. And for the whole year I bought 5 logistics centers in the USA for the sum of $700 million. Ortega's fortune totals about $ 63.5 billion, he has a controlling stake in Inditex SA, the owner of Zara.
At the same time, institutional investors are likely to continue to lose interest in real estate.