Commercial real estate to gain more appeal among ultra rich

DUBAI - While residential property was historically seen as a secure form of investment, the volatility of the asset class has made the commercial sector more appealing as its value extends beyond the ability to produce income.

Commercial real estate is expected to become an established component of the investment portfolios of the ultra-high net worth individuals, or UHNWI's, from the Middle East and North Africa region over the next decade.
 "Despite the recent decline in oil prices and the slowdown in global trade and commercial volumes, UHNWI's are committed to the growth of businesses and the industrial, logistics and transport sectors over the next decade," said Dana Salbak, head of Mena Research at Knight Frank.
While 82 per cent of UHNWI's from the Mena region have invested in residential property over the past decade, only 53 per cent are expected to allocate funds to the asset class over the next decade,  Knight Frank's 2016 Attitudes Survey conducted in conjunction with ultra-wealth intelligence consultancy Wealth-X, revealed.

Responses from Mena reveal a growth in allocation to offices from 41 per cent between 2005 and 2015 to 53 per cent between 2015 and 2025. "We also see the emergence of warehousing and logistics as a key element in UHNWI's real estate portfolio over the next decade, with 32 per cent revealing they would invest in assets within the sector," said Salbak. 
 "While residential property was historically seen as a secure form of investment, the volatility of the asset class has made the commercial sector more appealing as its value extends beyond the ability to produce income," said Salbak.
 In terms of location, total cross-border investment from Middle Eastern capital into commercial properties focused on the major global gateway cities of London, Paris, New York and Sydney.  "The availability of diverse investment products have made property more accessible to a wider range of investors, while the high level of market transparency and diverse expertise across these markets enables private investors to overcome their knowledge gaps," said Salbak.
According to a recent report by Cluttons, while residential property remains the most attractive investment asset for UAE high networth individuals, interest in commercial property remains strong.  
  "The most popular commercial property sector amongst HNWI surveyed was retail. This sector is also particularly popular amongst institutional level investors, as evidenced by the January 2016 purchase of shares in the Liverpool One shopping centre by the Abu Dhabi Investment Authority for £300 million. However, offices are also an investment asset of choice, with 22 per cent of UAE HNWI indicating a preference for this asset class," said Cluttons.
 Cluttons' 2016 Middle East Private Capital Survey in partnership with YouGov, shows that 63 per cent of GCC HNWI plan to invest in their preferred real estate locations during 2016. Of those surveyed, 27 per cent identified Dubai in their top three destinations within the GCC, while 21 per cent chose Abu Dhabi and eight selected Sharjah.
 The variety of investment options available in Dubai range from low-end, high yielding residential units in peripheral schemes such as International City and Discovery Gardens, to more sophisticated investment options in the office market, where yields can range from 6.5 per cent to nine per cent, according to Cluttons. issacjohn@khaleejtimes.com