Knight Frank’s latest report highlights a notable trend in the luxury residential property market, with prices continuing to rise in 2023 despite declining trends in other major cities like New York and London. According to the report released on Wednesday, luxury property prices globally experienced a 3.1% increase, fueled by double-digit gains in cities such as Manila and Dubai, which offset declines observed elsewhere.

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The property markets faced significant challenges in the past year, including rising borrowing costs, inflation, and economic uncertainty, resulting in a sharp decline in transaction volumes. However, the resilience of luxury property prices can be attributed to several factors, including increased investment by the wealthy as stock markets rebounded.

Manila emerged as the top performer among the 100 markets tracked by Knight Frank, with prices surging by 26%. Dubai and the Bahamas followed closely, ranking second and third, respectively. Conversely, luxury prices in New York and London experienced a 2% decline in 2023 and currently stand 8% and 17% below their recent peaks, according to Knight Frank’s flagship The Wealth Report.

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Liam Bailey, global head of research at Knight Frank, commented, “As wealth portfolios recovered in 2023, affluent buyers targeted residential property in the world’s luxury markets.” Kate Everett-Allen, head of international residential and country research, noted a softer landing for prices compared to initial predictions amidst the pandemic-fueled property boom.

In contrast to the residential sector, the commercial real estate market faces challenges, particularly with the increasing trend of remote work impacting office spaces. Vacancy rates are rising, and office buildings are experiencing devaluation, intensifying the downturn in commercial real estate.

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Knight Frank’s data also reveals a significant decline in global investment in commercial real estate, falling by 46% in 2023 to $698 billion, primarily due to a retreat by American investors. Industrial and logistics sectors surpassed offices to become the most invested sector, indicating shifting investor preferences.

Looking ahead, private real estate investors are expected to capitalize on market dislocations, with increased activity anticipated in 2024. Knight Frank suggests that these investors will play a pivotal role in shaping the recovery of the real estate market in the coming year.