Super-wealthy private investors are growing in sophistication and targeting a wider range of property investments as a more analytical younger generation takes charge.

Deborah Watt, head of Knight Frank’s private client advisory team, toldProperty Week ahead of Wednesday’s publication of The Wealth Report that while ultra-high-net-worth individuals had historically been attracted to trophy assets, the younger generation was taking a different approach.

“They are looking for performance - income yield and some value-add, mainly in offices and logistics - but there is also an appetite for short-term income if there is a good rental growth story,” she said.

The growing popularity of industrial assets in particular illustrated how investment strategies had evolved, added Lee Elliott, head of commercial research at Knight Frank. “There is a perception that private investors are up for global trophy assets and that’s where it starts and ends, but that’s changing markedly,” he said.

“There’s an increase in private investors getting into industrial property. That’s as far removed from a global trophy asset as you can possibly be.”

Industrial focus

Many investors are now looking to set up family offices in the UK. “The next step is to post someone to London to look after the European operations,” said Watt, adding that this facilitated a more hands-on approach to projects “slightly higher up the risk curve”.

The Wealth Report, now in its 10th year, also revealed a change in geographical focus within sectors. In London, ultra-high-net-worth investors are looking beyond offices in core West End and City locations let to one or two tenants on long leases, to multi-let offices in new areas such as Bloomsbury, Farringdon and Old Street/Moorgate on shorter leases and with potential to refurbish and improve rents.

Investors are also becoming more adventurous sector-wise. As well as industrial, they are looking at alternatives such as student housing and healthcare, and taking development risk to convert obsolescent offices into hotels, residential or other specialist uses.

However, they are becoming more cautious about the high-end residential market, which has seen a significant fall in deal volumes since the stamp duty changes were introduced in 2014.

Residential market volumes above £2m were down about a fifth year on year, noted Liam Bailey, head of residential at Knight Frank.

While the majority of buyers in the £2m-£5m category were actually British, he added, the big growth story has been Chinese buyers taking share from the Singaporean, Malaysian and Hong Kong purchasers traditionally strong in the central London market.

The proportion of private wealth invested in the UK real estate market had stabilised since the start of the cycle in 2009 at about a quarter of all investment, said Elliott.

This was likely to top 30% if private investors continued to pursue a more sophisticated approach, he suggested. “Private investors have to up their game, which we’re already seeing with family offices and the likes trying to develop asset management capability,” he said.