Middle East investors are expected to pour $180 billion into commercial real markets around the world in the next 10 years, with Europe slotted to receive 80 per cent of the funds, consultancy CBTE predicts. The U.K. will remain a favourite location, but an estimated $60 billion will flow to other European markets, with Germany and Italy as “key targets”, along with Spain’s hotel sector, which is now a “strategic destination,” CBRE forecasts.
In contrast, Middle East funds have invested $45 billion in global real estate markets between 2007 and the end of 2013, CBRE reports. That’s seven times more than the Middle East funds invested in their own region, the consultancy notes.
Middle East investors poured $20 billion into commercial real estate in the last two years alone, CBRE reports.
While it is certainly not news that Middle East investors like European property, the report is interesting on many levels. For one, the volume of investment is staggering. But the focus on European real estate also reveals a reality of the choices offered to real estate investors. Despite the recent turmoil, Europe is still seen as a safer choice than other areas. Close to 90 per cent of all Middle Eastern commercial real estate investment outside of their home region in 2013 was in Europe, CBRE reports.
But Middle East funds have not been focused on real estate. When compared to funds from Western countries and Asia, Middle East funds allocate the smallest share – about 9 per cent of the total portfolio — to alternative assets.
“A further increase in allocation by Middle East SWFs, even by a small fraction, represents an extremely large amount of capital that would have a significant impact on the global commercial real estate market,” CBRE says in the report.
It is also worth noting that Middle East investors continue to look outside their own region, despite the growth of the property market closer to home. CBRE attributes this to “the extraordinary mismatch between the lack of institutional real estate in domestic markets and the huge spending power concentrated in the region.”
“The ‘buy and hold’ strategy adopted by many Middle Eastern investors within their home region and the resultant lack of deal flow opportunities leaves much unsatisfied demand here,” said Nick Maclean, managing director, CBRE Middle East. “Coupled with increased confidence in global markets and the need for diversification, overseas investment has grown strongly.”
In general, Middle East investors tend to be conservative. They may pay top dollar for prized assets, but they are not looking to “flip,” CBRE says.
“The vast majority of Middle Eastern investors are long-term players looking for wealth preservation and strong high income-producing assets, rather than opportunistic investors playing the cycle for short-term gains,” said Jonathan Hull, managing director, EMEA Capital Markets. “This strategy favours prime buildings in core markets and often very large lot sizes.”