Family office insights

05 Sep 2023
Family office insights

How are family offices investing in real estate?

Our latest Global Family Office Report which is based on an extensive survey of 230 clients globally has shown that family offices anticipate increasing real estate investments over the next five years.

We talked to UBS experts Nicki-Marco Weber, Head Europe Investment Sales Specialists and Thomas Veraguth, Chief Investment Office Real Estate Specialist, about how family offices invest in this asset class.

What have been your main observations from the Global Family Office Report in terms of how family offices invest in real estate?

Weber: After planning to trim their allocations to real estate in 2023, family offices plan to increase them again in the next five years. This is in line with the current real estate cycle. Once real estate prices bottomed out, real estate could provide an interesting point to increase the real estate allocation.

This sentiment is also reflected by feedback from a Danish CIO who said: “In terms of real estate, we plan to invest more but it’s hard to conclude anything at the moment because the business cases that we see do not yet reflect the shift in interest rates. However, I think the situation will settle in the next year or two.”

We see that there are significant regional differences between real estate investment preferences by family offices. What stands out for you most and what are the underlying reasons

Veraguth: It’s mainly European including Swiss, Latin American and US family offices that foresee bigger allocations in real estate. One reason may be that these are the regions where nominal interest rates are relatively high and have furthest to fall, which supports capital returns. By contrast, fewer Asia-Pacific investors see themselves increasing allocations as real estate yields are typically low in gateway Asian cities.


What are your observations from interactions with clients in terms of regional differences?

Weber: Profit taking, due to the extraordinary high returns in core real estate in 2021 and in the first half of 2022, and the denominator effect which is an over allocation in real estate as a result of private real estate strong performance and negative performance of the traditional asset classes in 2022 have been the main reasons for clients to reduce their real estate allocation at the end of 2022 and in 2023 across the globe.

More trading-oriented clients, for example Asian clients acted faster and family offices with an institutional like decision making process, for example European clients, acted slower. The rapidness and magnitude of the interest rate increase, e.g. in the US, influenced the speed of decision making as well.

In many client meetings we have observed a counter-cyclical-investment behaviour from real-estate-centric clients, mainly concentrated in some European countries and the Middle East. Such behaviour could end up being very rewarding for those clients.

Real estate is a sector for which location is everything. In your view, what were the most interesting findings in the Global Family Office Report?

Veraguth: Family offices with real estate investments state that their allocations include 30% domestic residential and 32% domestic commercial. The balance, 38%, is allocated to international real estate. This confirms the well-known tendency of real estate investors to predominantly invest domestically.

When looking at the type of real estate family offices invest in, what does the report tell us?

Weber: Family offices mostly have direct investments in fully owned (59%) or partially owned (14%) physical real estate. The remaining balance of 26% is invested indirectly in real estate (21% closed of open-ended funds; 6% in listed real estate companies). This is not new as Family Offices and the Beneficial Owners behind them like to have the high control which comes along with direct investments. Their direct investments are either domestically invested or in relatively transparent and liquid market as the global gateway cities, particularly London.

The increasing professionalism and specialization of the real estate market however provide a strong and growing case for specialized real estate funds where it is difficult to get access to (e.g. niche sectors in Living or Life Science related real estate).

What risk categories are family offices most invested in? And do we see any regional differences in terms of culture of investing?

Veraguth: The culture of investing varies between regions. European (especially Swiss) family offices are less keen to actively trade properties and prefer to hold core and core plus buildings for income. US family offices are, on the contrary, most likely to seek higher risk opportunities for capital appreciation as their average holding period is shorter. Larger family offices with high average single investment values also tend to invest more actively for capital appreciation, where larger trades increase the potential costs recovery.

Family offices that manage more than USD 1 billion, allocate almost half (48%) of their real estate investments into value-add or opportunistic type of investments, while smaller family offices with assets of USD 100 million to USD 250 million only 37%.

For more details please refer to the latest Global Family Office Report.

Global family office report cover

Global Family Office Report 2023

Our annual Global Family Office Report is the most comprehensive study of single family offices worldwide.