Tag: ESG

• What rich people plan to do with their money in 2023

  Each year in March, Knight Frank publishes something called, The Wealth Report, which typically includes things like its Prime International Residential Index (PIRI) and a general overview of what ultra high-net-worth individuals (UHNWIs) are up to with their money.

  (An UHNWI is typically defined as someone with a net worth greater than $30 million. And as of last year, there were nearly 400,000 of them around the world, with Hong Kong being the city with the most.)

  In anticipation of this year’s report, Knight Frank has just published the key findings of an “Attitudes Survey.” This is them talking with and surveying private bankers, wealth advisors and family offices about some of the key themes for 2023.

  Here are a few of my takeaways:

  • Globally, about 1/3 of UHNWI wealth is allocated to primary and secondary homes. This is expected. Generally the richer you become, the more your net worth gets diversified away from your primary residence. It is also worth noting that of this 1/3 allocation, more than a quarter is being held outside of their country of residence. This outside-of-country-of-residence percentage is highest for UHNWIs in the Middle East (41%).
  • The average UHNWI owns 4.2 homes around the world, with UHNWIs in Asia owning the most: an average of five homes. This is the kind of stat that might provide motivation for a foreign buyer ban, but I continue to believe that there are other bigger drivers impacting housing affordability/supply across our global cities.
  • About 15% of UHNWIs said that they want to purchase a residential property this year (2023). This is down from 21% last year. Inline with bullet point number one, the greatest appetite/stated intent is coming from the Middle East. (Related article: The new Gulf sovereign wealth fund boom)
  • Real estate was identified as the top investment opportunity. About 1/3 of UHNWIs want to invest in real estate — either directly or indirectly — in 2023. And the top asset classes are: healthcare, logistics/industrial, office, multi-family rental apartments, and hotels. It is interesting to see office in the top three. A positive sign that it is maybe being viewed as an oversold opportunity.
  • Finally, environmental sustainability is being increasingly considered by UHNWIs when it comes to investment properties: 57% are considering energy source(s), 33% are considering opportunities for refurbishment, and 30% are considering the materials used/the embodied carbon footprint inherent to the asset.

  For the full findings, click here.

  2023.01.10

• What am I paying more for?

  So here’s the thing. The whole reason we are all talking about how to build more sustainably is that there isn’t often a quantifiable ROI for doing so. If building a net-zero building cost less than building a regular building, everybody would be building one. But that is not the case, which is why our industry, and others, are grappling with how to justify the added costs, even though we all know it’s absolutely the right thing to do.

  The questions we are asking ourselves look something like this: If I spend X% more on this build, what kind of rent premium could I command? And in some cases this premium is quantifiable and in some cases it matters a great deal. For instance, in the case of a new office building, you might need to spend the extra money so that you can attract the right tenants. While in other cases/asset classes, you might feel as if there’s no rent premium and nobody will ever pay more.

  But I like how Seth Godin thinks about it in this recent post: people never pay extra. If you’re paying more for an electric car, for example, you aren’t actually paying extra. What you are paying is a price that you feel is fair for what you are receiving. And what is it that you’re receiving? Well, in this case, you’re getting an electric car, but you’re also buying in Seth’s words, “sustainability, community awareness, cachet, status, safety, quiet, and the feeling of being an early adopter.”

  These things have value to some people. And as long as you can deliver on your promises, extra isn’t extra at all. But perhaps more importantly, this early adoption can help encourage change. Electric cars are becoming cheaper and cheaper, and I think it’s pretty clear that they will soon replace combustion engine vehicles. This model of starting at the top of the market and then moving down seems to have worked.

  Now, the auto industry isn’t perfectly comparable to the building industry. They have been good at improving productivity and bringing down costs, and we have been awful at it. Depending on how you measure it, construction productivity growth over the last half century is sitting somewhere between flat to some negative number. But I don’t think this dubious achievement changes Seth’s message. Think about what you’re offering. Maybe extra isn’t extra.

  2022.06.07

• Three in four Americans believe it’s better for the environment if houses are built farther apart

  Living in a low-density place with lots of greenery and open space can feel like a pretty “green” way to live. Maybe you’ve even got a little garden where you grow delicious tomatoes. And indeed, a lot of people seem to think this is the case. According to this recent YouGov poll (which surveyed 1,000 Americans), 75% of US adult citizens believe that “it’s better for the environment if houses are built farther apart.” The number drops slightly to 68% for Democrats, but we’re still talking about a clear majority.

  

  Most experts will tell you that the opposite is, in fact, true. One of the best ways to be green is to live in a high-density urban setting and get as far away as you can from the natural environment so that you don’t screw it up. There are multiple reasons for this, but it generally comes down to the fact that cities use land and other resources far more efficiently on a per capita basis. Smaller living spaces, fewer cars, more things that are shared, and so on.

  The reason why this isn’t so obvious is that per capita thinking is perhaps harder to grasp. Living in the countryside certainly feels more green than living in the middle of New York City. But what if the 8.5 million or so people in New York City suddenly decided to sprawl outward into the countryside to consume more housing (that would then need to be heated and cooled), and then started driving everywhere (in lieu of taking transit, cycling, and walking)?

  This would be a less green outcome. It’s about the collective here, not what feels nice and green for any one individual.

  2022.04.14