Global residential investment outstrips offices, industrial growth set to continue in 2022

Industrial demand in the Middle East is poised to grow as e-commerce flourishes, and prime offices will remain core assets in major cities

Residential and industrial property will be the strongest real estate asset classes globally in 2022, and that total investment volumes bounced back very strongly in 2021 as an increasing number of funds looked to invest into real estate, according to Savills World Research report.

In an update to Impacts, its global research programme, Savills says that in the 12 months to November 2021 global real estate investment volumes rose 38 per cent on the same period in 2020 to $1.3 trillion. The number of funds targeting real estate also reached new heights as investors sought to diversify income streams: 1,250 real estate funds targeting $365 billion in capital between them were identified in 2021, according to Preqin data, up from the approximately 1,000 funds that were active in 2020.

Swapnil Pillai, Associate Director, Middle East Research said: “Covid-19 accelerated trends that were already set in motion before the pandemic took hold. While industrial has emerged as a strong but natural winner as a result of a flourishing e-commerce sector, prime offices found favour once again across the Middle East markets as employees returned to the workplace. As population growth picks up again, especially in the UAE and Saudi Arabia, residential development will continue to remain a key focus area.

According to Savills, while global investment in the offices sector remains below pre-pandemic levels, volumes in the highly sought-after industrial sector rose 54 per cent; this is likely to continue throughout 2022. Residential (namely multifamily, but also student and senior housing) became the largest sector for investment globally in 2021, overtaking offices for the first time (see chart). The international real estate advisor says that investors are increasingly attracted to residential’s secure, income generating qualities, robust underlying demand, and resilience against technological disintermediation, but while strong activity will continue in 2022 a dearth of standing stock means that development will be the entry point for many.

Paul Tostevin, director, World Research team, said: “While the stats show offices were less loved than residential last year, despite the multitude of headlines about ecommerce growth they still made up a greater proportion of the global market than industrial. With cross border investors, particularly in Europe, focusing on ESG strategies in 2022 we’re likely to see opportunities to redevelop, reconfigure and repurpose office stock into high-performing sustainable assets, while in much of Asia and the Middle East the office is still very much the backbone of working life. Retail bricks and mortar, while maligned in some markets, is still at the heart of the consumer experience in China, for example, even with its extremely high online penetration rate, while in the West, pricing of some assets now looks competitive and 2022 may see more opportunistic investment in the sector.”

Savills sector themes for Middle East real estate investment in 2022:

In 2022, prime offices occupied by government organisations and multinational corporations will remain core assets in major cities across the UAE, KSA, Bahrain, Oman, and Egypt. This will be followed by multi-let offices in good locations across Cairo and Riyadh.

Commercial real estate demand is being driven by banking and financial services, technology and fintech.

E-commerce continues to fuel demand for quality warehouses. However, the Middle East is still one of the most under-penetrated markets for online shopping, so expect further activity in 2022.

Super-regional malls across Dubai, Cairo, and Riyadh will continue to gain in popularity with investors in 2022 while the community retail establishments across mixed-use developments in Dubai, Abu Dhabi, Riyadh, and Cairo will also be in focus.

Prime residential in Dubai, notably the most spacious properties, continue to attract demand, while other segments of the residential market play catch-up. Riyadh and Cairo will be the other markets to watch out for in terms of residential, and there is opportunity for the development of branded residences in the latter.

Data centres offer opportunity for portfolio diversification and there remains room for growth. Investors will however be increasingly mindful of this sector’s substantial environmental footprint.

Life sciences offers significant potential for those with the know-how, with halo benefits for surrounding uses in knowledge hubs.

Closer to home, the following investment themes emerged for the Middle East.

— business@khaleejtimes.com