Full marks for luxury trends
‘The Wealth Report’ by Knight Frank, edited by Andrew Shirley, tracks property performance, wealth distribution and attitudes, offering an in-depth and consolidated analysis of the performance of different countries, assets and investments over the last year, especially among the ultra-wealthy. We extract the findings on prime residential property and luxury goods. You can read the full version at knightfrank.com/wealthreport.
Much of ‘The Wealth Report’ deals with important themes, such as global wealth distribution, the world’s most important cities, property markets and investments. But we also look at exciting items, such as luxury goods, classic cars, art, jewellery and fine wine. Of course, this being a serious research publication, we naturally look at such purchases from an investment perspective. The latest results from the Knight Frank Luxury Investment Index, which tracks a theoretical portfolio of 10 investable luxury assets, show that many of these investments of passion have seen their values continue to rise.
Although, according to the results of our Attitudes Survey, the personal pleasure they provide is the main reason most ultra-high-net-worth individuals (UHNWI) like to collect beautiful and pleasurable things, one suspects that even the most epicurean collectors would prefer that their treasures grow in value.
Coloured diamonds are the latest addition to our index. Given that jewellery has historically been a common way to store and transfer wealth in many cultures, diamonds are perhaps one of the most multifunctional assets in the index, with some high-profile sales proving the enduring appeal from an investment perspective.
Pearls, which until recently were considered rather old-fashioned, are also rising rapidly in value. This trend is being helped by the almost total lack of supply of new natural pearls, coupled with strong demand from the Arabian Gulf, where many of the world’s finest pearls were originally harvested.
Indeed, much of the recent demand for luxury goods and investments has been driven by wealth creation in regions with burgeoning economies, such as Asia and the Middle East. It is therefore intriguing to see that the UK tops our new Big Spenders Index, compiled for ‘The Wealth Report’ by Ledbury Research. The index tracks the countries likely to see the strongest growth in spending on big-ticket luxury items by their own UHNWI populations and visitors from abroad. It would be fair to say that the UK secured poll position off the back of the many visitors who flock to London’s luxury stores and increasingly out-of-town designer outlets such as Bicester Village, the second most-visited destination in the UK for wealthy Chinese tourists and part of a string of similar ‘villages’ around the world.
Luxury Spending Trends
Drawing on extensive monitoring of luxury markets around the world, Ledbury Research picks out interesting developments within the main luxury goods categories.
Yacht Market Recovers
At the 2014 Monaco Yacht Show, shipbuilders, brokers and outfitters all said that the market was improving – 35 per cent more superyachts were sold in the first half of the year compared with the same period in 2013 (Camper & Nicholsons International). This is despite some caution in the industry because of the political uncertainty within Russia and the Middle East, traditionally seen as the strongest markets for superyachts.
Women’s Watches Boom
Women have traditionally been more interested in smaller, unobtrusive styles unable to accommodate the complexity and multi-functionality of traditional men’s watches. But a fashion for slightly larger watches and jewellery, combined with the growing purchasing power of women, particularly in luxury strongholds such as China, is helping drive sales. The share of female watches in the market has risen to around 35 per cent from 20 per cent in 1995 (Bain & Altagamma).
Wearable Technology and Luxury Overlap
With the wearable-tech trend continuing, fashion brands have been collaborating with tech companies to help break into the market, some also choosing to make their own. Ralph Lauren is pioneering this strategy through its newly unveiled line of smart-clothes, dubbed Polo Tech. Embedded technology in the clothes allows users to monitor their bodies with their smartphones.
Fine Wines and Spirits
French wine and spirits exports fell 7,3 per cent in the first half of 2014, hit by a 28 per cent fall in sales to China. Cognac exports to China fell 12 per cent (Fédération des Exportateurs de Vins & Spiritueux de France). The Chinese government’s continued austerity campaign is thought to be part of the drop in cognac sales as the spirit is associated with gifting. Scottish whisky sales, however, report an uptick in other emerging Asian markets, as it’s associated with status.
Manufacturers were hoping India would follow in China’s footsteps for luxury-car demand, but most have seen disappointing sales and sluggish demand. Only 250 supercars are estimated to have been sold in the country in 2014 (HIS). Import duty hikes and currency declines aren’t helping, but a more fundamental obstruction comes from India’s roads. Manufacturers could, however, benefit from impending releases of luxury SUVs.
Diamonds are Forever
Robust returns on diamonds of more than one carat, mounting demand from Asia and the prospect of mines running dry all point towards the increasing attractiveness of precious natural diamonds as an investment asset. Global diamond supply is expected to plateau by 2020 and drop off signiﬁcantly in the following decade, according to mining giant De Beers. ‘Fancy colour diamonds’ – a technical term in the industry for stones of exceptional colour – are far rarer than white diamonds and are performing particularly strongly. The 9,75-carat Mellon Blue (right) set a new world auction record for the carat price of a blue diamond when it made $32,6m at Sotheby’s New York in late 2014. Most sales, however, do not take place at auction, so tracking the change in price has been difficult. But a new index created by the Fancy Colour Research Foundation, which records deals at all stages of the supply chain, is more transparent. Overall, fancy pink, yellow and blue diamonds have increased by 167% in value since 2005.
Certain cities offer more value for money than others: US$1m will buy you 204m2 in Cape Town, 21m2 in London, and only 17m2 in Monaco.
Bright Lights, Big City
Virtually everybody likes to talk about house prices, particularly the value of their own home. But for ultra-wealthy individuals who may own houses around the world, keeping track of their portfolio’s worth is not that simple. Knight Frank’s newly enlarged Prime International Residential Index (PIRI) now includes performance data for 100 of the world’s key luxury city and second-home markets and is recognised as the sector’s most comprehensive performance benchmark.
So, what does the PIRI 100 tell us about prime market performance in 2014? Which UHNWI property owners will be rubbing their palms, and who will be less cheerful? Well, the picture is certainly mixed around the world.
Those lucky enough to have property in the US are unlikely to have any complaints, as domestic and international demand fuelled price growth.
European destinations fared less well, with values dropping on average by 0,4 per cent across the continent. Overall, city markets around the world outperformed second-home sun and ski destinations.
Of course, the analysis is about more than just what happened last year. While past performance is interesting, what the astute property owner will be more concerned about is future trends.
The globalisation theme is highlighted by the rising number of UHNWIs who are looking to shift their domicile. The growing use of private jets for business and personal purposes is another reflection of rising wealth-mobility.
The Knight Frank PIRI top 30 cities
NR LOCATION WORLD REGION ANNUAL % CHANGE
01 New York North America 18,8
02 Aspen North America 16,0%
03 Bali Asia 15,0%
04 Istanbul Middle East 15,0%
05 Abu Dhabi Middle East 14,7%
06 San Francisco North America 14,3%
07 Dublin Europe 13,4%
08 Cape Town Africa 13,2%
09 Muscat Middle East 13,2%
10 Los Angeles North America 13,0%
11 Auckland Australasia 12,1%
12 Jakarta Asia 11,2%
13 Sydney Australasia 11,0%
14 Tel Aviv Middle East 10,3%
15 Bengaluru/Bangalore Asia 10,1%
16 Amsterdam Europe 10,0%
17 Miami North America 9,8%
18 Berlin Europe 9,0%
19 Washington DC North America 8,7%
20 Johannesburg Africa 8,7%
21 Melbourne Australasia 8,5%
22 Tokyo Asia 8,1%
23 Verbier Europe 8,0%
24 Munich Europe 8,0%
25 Vancouver North America 7,5%
26 Frankfurt Europe 7,5%
27 São Paulo Latin America 7,3%
28 Toronto North America 7,1%
29 Riyadh Middle East 6,0%
30 Seoul Asia 5,3%
- The Wealth Report’ by Knight Frank: knightfrank.com/wealthreport
Photographs: iStock, supplied