HNWIs lift luxury outlook as sector sees post-Covid bounce

[Image: Yves Cedric Schulze/Unsplash]

Europe’s luxury market – including retail, hotels and living – has broadly outperformed the mass market, mainly owing to the increase in global wealth and the rebound in tourism that followed the pandemic according to CBRE’s inaugural Luxury Real Estate 2024 report.

The luxury market is also set to benefit from the significant growth of high net worth individuals (HNWIs)  – notably from Asia, especially Taiwan and India – over the next five years.

CBRE also notes that a further boost to demand is likely due to a “seismic” transfer of wealth from the baby boomer generation to the gen X and gen Y cohorts.

According to the report, luxury retail sales in Europe reached €103 billion in 2023, with UK, France and Italy, the top three markets, accounting for almost half of the total share (17%, 17% and 14% respectively).

A slowdown is expected in 2024, this is likely to be temporary, as the long-term fundamentals for this segment of the market are robust.

Rental growth in luxury streets also exceeds that of the mass market. The prime rent currently achieved on London’s New Bond Street is approximately three times that seen in 2010, and on Sloane Street it is over double. Meanwhile, in locations such as Oxford Street and Regent Street prime rents have increased by 12% and 50% respectively.

In Paris, rents have grown 130% on Rue Saint-Honoré since 2010, while those on Boulevard Haussmann are back to 2010 levels. In Milan, prime rents on luxury high streets have grown by more than 30% over the last four years relative to mass-market streets.

Together with yield movements, this rental growth has made prime retail assets an appealing investment.

CBRE also points out that the pricing power of luxury hotels is demonstrated through average daily rate (ADR) growth which, for the wider hotel market between 2019-2023 was 27% in London, compared to 42% in luxury. This was seen too in both Paris and Milan, with ADR growth for the wider hotel market at 37% and 37% respectively, compared to luxury ADR growth at 42% and 60% respectively.

Meanwhile, the global luxury residential market continues to experience significant growth, and while Asia-Pacific, North America and mainland Europe are traditionally the key markets for HNWIs, CBRE said a shift is taking place.

Over the past seven years, the popularity of European cities, and southern European cities in particular, has increased, with Portugal, Spain, Italy and Greece the main beneficiaries of heightened interest from Asian HNWIs.

According to the research, London remains the biggest market for high-end living, with around 230,000 millionaires residing in the city. CBRE’s research shows that the number of luxury transactions continuously increased between 2018-2022, peaking at 245 transactions that year. Activity at the ‘exceptional’ scale (those at €40,000+ per sqm) has surged, with the data showing a 17% increase in these transactions between 2021 and 2023.

London is also still the most expensive in Europe, with pricing circa €30,000 per sq m, significantly higher than Paris and Amsterdam. The average transaction price of luxury properties in London has increased by 20%, from €8.4 million in 2018 to €10 million in 2023.

“The evolution of the luxury residential market has pushed peripheral locations into the spotlight,” said CBRE’s head of private clients Marcus Bradbury-Ross. “London remains the biggest market for high-end living, but we’re increasingly seeing destinations such as Amsterdam, Geneva and Dublin in-favour, primarily due to favourable tax regimes, attractive fiscal climates and geopolitical changes in the more traditional locations.”

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