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Full marks for luxury trends

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.

 

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Shining Bright
The value of coloured diamonds has risen by 167% since 2005

 

Luxury Research

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.

 

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Leagues Ahead
Luxury, sports and technology merge as fashion houses collaborate to create optimised exercise clothing and accessories

 

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.

 

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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.

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Cars

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.

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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.

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Fact
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.

 

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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%

 

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Text: Supplied
Photographs: iStock, supplied

 

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