How top 1% of rich individuals plan their investments

The global economy has defied recession fears with robust growth over the past 12 months, most notably in the US. Despite apparent stability in developed economies, growth will slow over the coming year. Global GDP will likely expand by around 2.9 per cent in 2024, down from 3.1 per cent a year earlier. The American economy’s unexpected resilience is partly down to increased consumer spending, fuelled by savings accumulated during the Covid-19 pandemic. Once these savings diminish, higher interest rates will constrain spending, dragging on growth. The world’s economic stability is also underpinned by substantial but unsustainable government spending, resulting in historically high levels of government debt. Higher debt costs mean a reckoning is coming for governments this year.

Some factors will weigh on debt costs, notably the world’s ageing population. This demographic shift towards higher savings will lead banks to cut lending rates as they aim to align higher deposits with increased borrowing. That will be counterbalanced by the greening of the global economy and the ongoing decoupling of the West from China’s supply chains.

Global property marketssuffered value corrections in 2023. While most residential markets got off lightly, commercial markets felt the brunt of the downturn. New lending will be issued below the cost of debt that prevailed in late 2023, but still above the levels at which existing deals were struck. Even as central banks cut rates this year, it will still feel for many as though monetary policy is tightening. This process, while painful for some, is the key to a real estate market recovery in 2024. Lower values, lower interest rates and some forced selling will allow for a much anticipated improvement in investment volumes. With more than $2 trillion in loans set to mature through to 2027 in the US alone according to MSCI, opportunities for well-capitalised investors will appear with increasing regularity as the year progresses.

By 2025, approximately 40 per cent of corporate IT expenditure is anticipated to be directed towards AI-related projects, with IDC projecting an astonishing annual investment of $500 billion in AI products by 2027. This substantial investment will be felt acutely in the real estate sector, driving a surge in demand for specific property categories. There will be a sizeable increase in demand for data centres, especially as proximity to cost-effective energy sources becomes increasingly critical. Expect a heightened need for specialised office spaces tailored to accommodate collaborative research and laboratory requirements. The rising demand for research facilities, pivotal to the development of AI-related hardware and software, will likely favour industrial real estate located near universities or established technology hubs.

We expect the number of wealthy individuals globally to rise by 28.1 per cent during the five years to 2028. While positive, our forecast points to a rate of expansion noticeably slower than the 44 per cent increase experienced in the five-year period to 2023. Our model points to strong outperformance from Asia, with high growth in India (50 per cent), the Chinese mainland (47 per cent), Malaysia (35 per cent) and Indonesia (34 per cent). With the mobility of wealth increasing all the time, a key question is whether future growth remains within these and other high-growth markets, or whether there is a leakage of talent to Europe, Australasia or North America. Outside Asia, strong growth is focused on the Middle East, Australasia and North America, with Europe lagging and Africa and Latin America likely to be the weakest regions.

This expanding cohort of wealthy individuals looks favourably on real estate. Almost a fifth of UHNWIs plan to invest in commercial real estate this year, while more than a fifth are planning to buy residential. The market disruption impacting offices in particular, but affecting other sectors as well, considered alongside the requirement for investment to “green” existing property assets, points to a need for very deep pools of equity to come into the sector.

In all the markets, we have assessed for this year’s report, the 1 per cent threshold starts far below the $30 million entry point for becoming a UHNWI. European hubs top the list, led by Monaco, where $12.9 million is the threshold to join the 1 per cent club. Following behind are Luxembourg at $10.8 million and Switzerland at $8.5 million. Perhaps surprisingly, bearing in mind its dominance in terms of overall wealth creation, the US comes in fourth, at $5.8 million. Across the Asia-Pacific region, Singapore leads the pack with a requirement of $5.2 million. There are substantial differences in wealth distribution between countries, with smaller hubs demonstrating a bias towards higher thresholds.