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Home > Business Nation
 
Gulf SWFs to broaden range of target acquisition markets

Issac John / 2 April 2014

Global transaction volumes for commercial property to rise 15%

Sovereign wealth funds in the Middle East, mostly owned by the GCC countries, are likely to broaden the range of target markets in 2014 after doubling their acquisitions to $18.8 billion in 2013 as the global commercial property transactions volumes are projected to jump, Knight Frank’s said on Monday.

A construction worker stands on scaffolding outside a commercial office block property in London. Middle Eastern investors have been targeting primarily the UK and the US. — Bloomberg

The latest Global Capital Markets report by the independent real estate consultancy said the global transaction volumes for commercial property (retail, offices, industrial and hotels) are set to see growth of at least 15 per cent in 2014, which will take the annual total to well in excess of $600 billion.

In 2013, global transaction volumes for commercial property amounted to $536.7 billion — a rise of 18 per cent on 2012 and the highest total since 2007, the report said. 

The report argued that improving debt availability would boost interest in secondary markets and development opportunities, providing a broadening range of target markets for sovereign wealth funds from the Middle East, as well as Chinese investors.

The report observed that the amount of investment capital emanating from China and the Middle East has increased sharply.

“Real Capital Analytics data shows that, in 2013, Chinese investment in global markets tripled to at least $14.3 billion. Over the same period, Middle Eastern sovereign wealth funds doubled their acquisitions to $18.8 billion, with the UK and US firm targets.  This trend is expected to continue apace, with the range of target markets likely to broaden,” the report pointed out. With over 10 sovereign wealth funds and $1.7 trillion worth of assets under management, the GCC has become as the world‘s largest net supplier of financial resources.

The total worth of all SWFs in the world, led by Norway, Saudi Arabia and the UAE, stands at around at $5.3 trillion in assets under management, with GCC SWFs accounting for approximately 30 per cent. SWFs are fundamental to the GCC asset management industry and account for 88 per cent of existing investable assets and 74 per cent of new assets.

For Chinese investors, the main target market has been the UK, followed by the US and, to a lesser extent, Australia. Middle Eastern investors, meanwhile, have been targeting primarily the UK and the US, while US money has been 
flowing to a range of destinations, including the UK, France, China, Germany, Australia and Japan, the report noted.

Joseph Morris, Knight Frank’s Director of Capital Markets, said property yields continued to offer a significant margin over government bonds in most markets.  “While pricing at the prime end of the market will remain keen, yield compression will slow, as investor attention gradually shifts towards higher-yielding opportunities which offer good prospects for growth.”

Knight Frank’s Research Manager for the Middle East, Khawar Khan, said the weight of capital seeking exposure to real estate continues to increase, with investors being drawn to the asset class by its income-producing qualities, the improving availability of debt and a steady recovery in global occupier markets.  “As a result, global investment volumes should comfortably exceed the $600 billion mark in 2014. “ In the Americas, commercial transaction volumes amounted to $118 billion in 2013, an annual increase of 20 per cent. Canada and Mexico had a good year and the US market has rebounded very strongly in terms of pricing, activity and the availability of debt. In Europe, 2013 volumes rose by over 20 per cent to reach $193 billion, helped by a very strong final quarter.

“Volumes for all commercial property sectors have risen sharply, most notably for industrial and hotels. In Europe, the disposal of distressed assets accelerated in 2013, with loan sales playing a more important role,” the report said.

While volumes in France and the Nordics were down, the UK had a very strong 2013. “There is increasing investor interest outside London and the South East, which is leading to yield compression in the regional markets.”

According to Knight Frank, in Asia Pacific, total commercial volumes in 2013 were $118 billion, up 11 per cent on 2012.

      — issacjohn@khaleejtimes.com

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