Middle East investors remain active buyers, CBRE reports

Capital leaving the Middle East region has continued to target global real estate markets from H2, 2015 to H1, 2016.

Investors from the Middle East have remained active buyers despite a slowdown in global investment turnover in H1, 2016, a new CBRE report launched at Cityscape 2016 has found.
CBRE's Middle East 'In and Out' 2016 report revealed that Middle East outbound capital flows into global commercial real estate reached $10 billion in the first half of 2016, with international market destinations becoming more diverse.
"In spite of oil pricing between $40 and $50 per barrel, capital leaving the Middle East region has continued to target global real estate markets from H2, 2015 to H1, 2016," said Nick Maclean, managing director of CBRE Middle East. "Sovereign wealth funds have increased their allocation to real estate and family offices, and high net worth individuals have increased their overseas spending to achieve greater diversity."

Maclean also revealed that London is a key target for high net worth individuals, and that the combination of a favourable exchange rate and economic growth has led to institutions looking very closely again at the US.
CBRE reported that since the bottom of the market in 2009, Middle East investment has grown much faster than the market as a whole and faster than other cross-regional investment. The sharp increase in investment was driven by sovereign wealth funds (SWFs) - in particular those from Qatar and the UAE. Capital flows from the Middle East are expected to remain high as SWFs increase the weighting of their portfolios and include a higher proportion of real estate.
New York, at $6.5 billion, was the top destination for Middle Eastern investment in the 18-month period from 2015 to H1, 2016, overtaking London, which now ranks second place at $4.7 billion, Singapore at $2.5 billion, Hong Kong at $2.4 billion, Paris at $2.2 billion, and Milan at $1.3 billion.
The targeted destinations show a departure from recent history, with substantial activity in the US and greater flows to Asia. Both of these destinations had previously been under-represented in Middle East investment. This suggests a move to a more balanced distribution of assets in order to achieve greater diversification. With substantial ground still to make up, this trend is expected to continue.
In terms of inward capital flow, the Middle East region sees only marginal investment volumes as compared to more developed marketplaces in Europe, Asia, and the Americas, with just a small number of major institutional real estate investment transactions completed over the past year. It is clear that the asset focus of investors is being heavily influenced by the market's structural challenges, with limited commercial investment driven by the underdeveloped nature of the market and unwillingness on behalf of owners to part with prime assets.
Matthew Green, head of research and consulting at CBRE Middle East, said: "The Middle East real estate sector continues to offer attractive investment opportunities but so far the market's full potential is still to be realised amidst limited availability of investment grade product, low investment volumes, and a general disconnect between the valuation of buyers and sellers. Despite these challenges, we expect to see the market open up in the coming years, as regional governments access new avenues for capital raising amidst an environment of lower hydrocarbon revenues and tighter liquidity."
- rohma@khaleejtimes.com