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A guide to luxury property investment in the time of COVID-19

A guide to luxury property investment in the time of COVID-19 38

By Mr Paul Rothschild, former CEO of Platinum Luxury Design & Development (PLDD) and advisor to luxury property development and management companies.

 

In keeping with other industry sectors, luxury property is experiencing a period of accelerated change. Luxury property stands apart from others, however, in that opportunities for investors continue to boom.

In the wake of COVID-19, investor focus is shifting and emerging trends are gathering pace. Overall, the luxury property sector has weathered the pandemic storm well, with wealth managers changing priorities but continuing to invest.

Emerging trends in luxury property investment shaped by pandemic response
Major trends emerging during the last 15 months include a move away from city centre residential property towards the leafy suburbs. Space and privacy have become vastly more important thanks to the implementation of widespread remote working practices.

Even as the UK begins to emerge from the strictest parts of lockdown, we can expect to see many in the corporate sphere expect to continue a flexible working pattern. And this means homes with more space, a more flexible layout and plenty of privacy to separate working parents from the distractions of the home.

According to data released by JP Morgan in October 2020, residential luxury property situated near to parks show an 18% premium over others. The same survey points towards a resurgence in the search for second homes, with buyers and investors interested in escaping to the countryside. This is reflected in the fact that UK properties located next to a waterfront now score a 46% premium over inland https://luxuryadviser.com/how-covid-19-has-affected-the-global-luxury-real-estate-market/property.

Health and wellbeing are top priorities for consumers
People are far more aware of the importance of their surrounding environment following the months of lockdown in the UK. From April 2020, a city centre penthouse with no outside space became far less attractive compared with a suburban home with excellent facilities and plenty of space.

In fact, space has become the key element within the property sector for luxury residential property investors. COVID-19 forced us all to reevaluate what’s truly necessary for a comfortable and safe home.

While the vaccine rollout in the UK has been a relative success story, it’s important to consider that the pandemic is not yet over. New variants challenge the Government’s plans to loosen restrictions, travel is extremely uncertain, overseas holidays are likely to be unavailable to most for the second unprecedented year in a row.

We still don’t yet know when or how the world will finally escape from the grip of COVID-19, but it appears certain that these trends will continue to shape the luxury real estate sector.

COVID-19 related concerns impact the focus for property investors and buyers

Towards the end of 2020, it was already apparent that the sector hadn’t stalled due to the events of the year. Just 7% of private investors reported postponing purchases across the UK, Switzerland and France. A third of those surveyed by JP Morgan indicated that they intend to increase their portfolio by the end 2021.

A further 64% have no plans to lower their investment percentage of residential property and only 3% actively reducing their exposure to real estate. Again, we see space and location developing as key investment considerations, with just under half of respondents prioritising rural locations.

Unsurprisingly, properties with a large home office (or enough internal space to create one) is also a major consideration for investors. Working from home will continue potentially long into the future. I suspect that a fusion of remote working and a couple of days in the office will become the norm in many sectors, driving this search for larger residential investment opportunities.

Properties that incorporate office space in conjunction with spacious recreational areas will continue to be of interest. Family concerns will dictate the need for various facilties, while the experience of lockdown is facilitating a taste for in-house gyms, spas, games rooms and cinemas.

Investing in the luxury property sector is no longer simply about finding somewhere to live that’s located near city-centre facilities and the office. Rather, it’s about investing in a future-proofed property that allows for an uninterrupted lifestyle regardless of any external constraints.

Luxury property investment is a solid asset class

Real estate has proven itself as a trustworthy alternative asset class, even among the most challenging circumstances. Low interest rates are also fueling investor interest across Europe and the rest of the world.

Investors should consider the trends that have developed since the advent of the pandemic and include them in any analysis. For example, we can be certain that affluent consumers will continue to prioritise wellness and mental health as the pandemic wears on. Should the world reach a state of ‘normality’, this won’t retreat into the background. I think, by now, it’s clear that a return to pre-pandemic attitudes is extremely unlikely.

These concerns will continue to shape the luxury property market and growth will continue. I don’t think that demand for exclusive residential real estate will lessen as we head into the second half of 2021.

And for those who have been living and working in a second home, the idea of returning to a city-centre office is unlikely to hold much appeal. Second homes will become the primary, or co-primary, residence for luxury property owners who retreated there during lockdown. This will continue for at least a couple of years until we can safely say COVID-19 is in retreat.

However, when the pandemic really is under control, there will be a surge back to exclusive city-centre homes and apartments. Investors should always have an eye on the middle and long-term trajectory of consumer attitudes. For now, it’s all about exclusive, safe properties with enough space to breathe.

Defining luxury property and investment decisions

The kind of property that affluent and high net worth individuals are seeking isn’t solely defined by price. A sound luxury property investment must include a level of prestige and unique stand-alone elements. Exceptional design, the highest quality materials, the latest technology, attention to detail… all of these should be of utmost importance for investors and buyers alike.

Investing in a luxury development on a build to order basis allows more flexibility for the consumer. However, for the investor short on time and creative input, a turnkey property is a major draw. Either way, the interior and the exterior should be exquisitely crafted, and today ethical and sustainable tools, design and process are expected as standard.

Investors should work with an experienced and established luxury property developer to gain the best insight into the changing state of this sector. We live in a global society that must contend with ever more complex socio-economic factors, along with the fallout from climate change and potential pandemics. Understanding how external events like COVID-19 impact the mindset of the luxury property consumer is vital to expand to an investment portfolio in a way that will guarantee returns.

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