Real Estate Insights: 2023 Mid-Year Luxury Market Update

Real Estate Insights: 2023 Mid-Year Luxury Market Update

  • SK Group
  • 08/16/23

We’ve all heard that ancient, ironic, and apocryphal curse: “May you live in interesting times!”

That’s where we live nowadays. The post-pandemic era persists in reminding us that the world is an interconnected thing, subject to the ebbs and flows of current events and brute market forces. We don’t claim to predict the future, but this Luxury Defined Mid-Year Market Update takes a clear-eyed look at the present.

We asked a number of specialists from the Christie’s International global affiliate network about the state of the luxury residential real estate market at mid-year. Their consensus for the remainder of 2023 is … take a breath … upbeat.

Despite uncertainty, stubborn inflation, interest rate gyrations, and continual struggles with inventory and supply chains worldwide, local and regional conditions have sustained the luxury property market. In fact, things are better than many had expected.

Looking forward, after a challenging second half of 2022, the experts are much more confident about the second half of 2023.

Luxury residential development in DubaiIn 2023, a slew of luxury branded residences and new developments entered the Dubai market. Among them is Eywa (pictured above), a LEED Platinum- and WELL Platinum-certified, next-generation residential tower overlooking the Dubai Water Canal and the Burj Khalifa.

One place where that confidence is sky high is Dubai, where sales and prices continue to surge in response to persistent demand. Jackie Johns, Managing Partner of Christie’s International Real Estate Dubai, said the market is, “stable and expanding, and the first half of 2023 met expectations exceedingly well.”

Sales volume for the first half of 2023 was AED 179.4 billion (approximately US$48.85 billion), tracking at more than 75 percent of the full-year 2022 total of AED 237.5 billion (about US$64.66 billion).

“Impressively, 176 deals surpassed the US$10 million mark, far outperforming similar luxury markets like New York and Hong Kong,” Johns noted. “This is due in no small part to the inherent ability of Dubai to accommodate growth, both financially but also in a very tangible manner.”

In fact, high-end developers have been unable to keep up with demand, but that’s expected to improve in the near future. Still, she says, “Dubai has solidified its position further in 2023’s first half as a preeminent global luxury market.”

Currency Plays

Affiliates in the Asia-Pacific region have seen increased interest from overseas buyers who are taking advantage of currency fluctuations. But there are other factors at play.

Darren Curtis, owner of Christie’s International Real Estate Sydney, said, “With a weaker Australian dollar and travel restrictions lifted in China, we expected strong overseas interest, and this was the case. We have completed many deals so far this year with international buyers, and this has meant the luxury market (in Sydney) has remained very buoyant.”

That’s not the only variable behind the upswing. He said Australia is a “highly desirable, blue-chip destination” and cited its “excellent schooling, good weather, and steady political environment” as factors in the market’s resilience. “It is also true that even at the very top end of our market in Sydney, prices are still relatively inexpensive compared to those in other global cities.”

Luxury ski chaletAccording to H2 Christie's International Real Estate, ski chalets are in high demand in Japan’s Hokkaido prefecture, signaling a desire for larger homes.

H2 Christie’s International Real Estate, based in Hokkaido, Japan, also noted currency as a driving force behind overseas interest in their region. “The biggest surprise of the first half of 2023 has been the devaluation of the Japanese yen,” said Paul Butkovich, Director of Real Estate Sales.

“With the weak yen in play, this is driving a lot of foreign investors to the Japan market as they see great value in the marketplace, especially if they are buying from Japanese [developers].” Pent up demand is also playing a role in propelling Japan’s vacation home market, as the country only reopened its borders following COVID in the second half of 2022. “We were predicting the wealthy Asian market would flood back to the ski resorts with expectations of acquiring lifestyle investment properties in the region, and that is exactly what they have been doing,” said Butkovich.

Post-Pandemic and Geopolitical Factors

Supply and demand are out of balance in many places, and generally it is because for-sale inventory has been at historically low levels for years going back even prior to the pandemic. However, that is not the case in New York City, according to Sonja Cullaro, Co-Founder and Executive Vice President of Christie’s International Real Group.

“Manhattan shows different trends than the rest of the country in the way that there is supply; however, the demand is not always meeting that supply. The market is stabilizing from the erratic movements we experienced during the pandemic era; however, buyers and sellers collectively are adopting to the market situation slower than normal. Buyers still believe that prices may decline further, and they are waiting for further adjustments. Meanwhile, sellers are believing that they already adjusted their prices,” Cullaro noted. She expects conditions to slowly improve in the second half of the year.

Continued global instability also plays its part in the fluctuations of America’s largest urban real estate market. Cullaro mentioned the ongoing war in Ukraine, as well as the overall economy and high interest rates, as affecting the New York City prime market.

The London market also began 2023 somewhat sluggishly, with the aforementioned factors playing a role, but also weather and the coronation of King Charles III.

“Generally, the UK luxury market is quite seasonal, and this year we experienced a late spring surge with activity taking time to get going,” noted David Ruddock, Partner, Head of Residential Sales Operations at Carter Jonas, a multi-disciplinary partnership and Christie’s International Real Estate’s exclusive UK Affiliate.

“The coronation was a time of celebration, but whilst some sectors of our economy will have benefitted, particularly retail and leisure, in the housing market activity often dips in months with extra bank holidays.”

Country home in EnglandA unique characteristic of the UK property market is the enduring appeal of period properties. UK affiliate Carter Jonas reported that high demand for such properties, particularly Georgian and Victorian manors and townhouses, will play a significant role in the second half of 2023.

Ruddock added, “Rising inflation, the availability of quality building contractors, as well as the variable supply and escalating prices of building materials, are impacting the way buyers are looking at properties in the UK. Increasingly buyers are turning towards new construction, or newly renovated properties, where the design and enhancements have been completed before purchase. People are looking at turn-key opportunities,” he said.

What Goes Up…

The consensus from affiliates is that high interest rates are having a larger effect on the residential market in Europe than in other regions. From London to Munich to Rome, rate hikes are pushing down affordability, consumer sentiment, and yields on investment properties.

In the Channel Islands nation of Jersey, luxury broker Gill Hunt of Hunt Estates said, “Interest rate hikes have had a major impact on buyers, and the overall number of transactions in Jersey is down year on year 30 to 50 percent depending on what property types are included. There is a desire to buy and sell, but affordability is the issue as buyers are concerned about the continuing interest rate increases.”

Rates have not risen as dramatically in Japan. “We have not seen large interest rate hikes from the banks, so this has also been very positive for the market as international investment pours into Japan,” said Paul Butkovich.

In Sydney, Darren Curtis said, “Rising interest rates have not impacted the top end of the market at all. Many of my buyers will be borrowing because they want to, not because they need to; this all happens post-purchase.”

Emerging Luxury Trends for the Remainder of 2023 

1. Land, More of It, and Larger Houses

In Dubai, green neighborhoods are gaining prominence. Jackie Johns puts this down to “a growing market sector related to post-pandemic changes in thinking.”

“Traditional buyer preferences for waterfront luxury will continue, while the newer trend of living close to green areas, an evolution of the post-pandemic need for private space, has fueled luxury living further inland near parks and golf courses,” she said.

Butkovich of H2 Christie’s International Real Estate in Hokkaido also sees buyers looking for more space, noting he is keeping his eye on the region’s chalet market where there are several new estate developments underway. “We should see a wave of these larger custom home sales in 2024-2025.”

In Sydney too, Darren Curtis sees a sharp increase in demand for large landholdings near the central business district. “Buyers are looking for 5-acre parcels within 40 minutes’ drive of the city,” he noted.

Luxury homes near Sydney, AustraliaAn emerging luxury trend in the Sydney market is a marked increase in demand for large landholdings close to the Central Business District.

2. “Flight-to-Quality” 

David Ruddock said local and global economic uncertainty has created a “flight-to-quality” mindset in the UK. “Some buyers are looking for a deal, but most are focusing on good value at a fair price. In the UK, that translates to the everlasting appeal of period properties. Owning and living in a beautiful Georgian house or a Victorian manor or townhouse comes with its cachet, and buyers often gravitate towards these properties,” he noted.

3. Deluxe Amenities: Ever Higher Levels of Luxury

For luxury homebuyers in New York City, building quality and lifestyle features are key. “Important, sought-after luxury features and amenities include a doorman, security, gym and exercise studios, swimming pools and outdoor space,” said Cullaro of Christie’s International Real Estate Group. “Buildings with star chefs and restaurants and full concierge service also continue to be in demand.”

4. Sustainability

Several brokers also cite an increasing focus on sustainability.

According to Ruddock, “Many of our buyers in the UK are looking for properties with renewable energy solutions and a high degree of energy efficiency built in.”

And in Dubai, Johns points to the introduction of developments like Eywa, a new-construction waterfront high-rise that takes design inspiration from the banyan tree and incorporates extensive greenery and wellness amenities into its program.

Luxury residential branded development in New York CityBuilding quality, sustainability, and lifestyle amenities (health and wellness, concierge services, security, and restaurants with Michelin-star chefs) were cited as important factors for buyers in New York City.

5. High Demand, Low Supply

Persistent low supply across many luxury markets will also keep pricing buoyant in the second half of 2023, our experts predict. This will lead to continued high levels of off-market transactions. In the Central London prime market (£5 million-plus), for example, as many as a third of transactions are happening off-market, Ruddock noted.

In Sydney, supply is still low, and demand remains high. “We expect to see activity levels remain high through the course of the second half of the year. I do not foresee any slowdown on the luxury end,” said Darren Curtis.

And Dubai? According to Jackie Johns: “Supply will pick up, but we do not expect demand to be fully met by the year’s close, particularly since the number of millionaires expected to enter the U.A.E. this year stands at approximately 4,500—a hugely promising number.”

Demand is so high in the city-state that it’s spilling over into neighboring Emirates, such as Ras Al Khaimah. One of several new luxury developments there is the multi-billion-dollar casino and lifestyle resort Wynn Al Marjan Island, set to open in early 2027.

Coupled with the continuing influx of high-net-worth individuals from countries like India, Russia China, and the UK, Dubai real estate will only grow. And properties here are still more affordable than those in similar luxury markets. Despite significant growth in apartment and villa prices, the average price per square foot for all transactions is still approximately AED 1,581 (US$430)—affordable in comparison to similar luxury markets worldwide, Johns noted.

Buyers therefore will continue to boost demand, attracted not only by branded luxury in developments bearing the Ritz-Carlton, Bulgari and Bugatti nameplates, but also market stability, high rental yields and asset appreciation, and Dubai’s 10-year, automatically renewable Golden Visa program.

“Dubai has established itself as a leader in global luxury real estate, offering both stability as well as high growth potential,” said Johns.

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