Middle Eastern investors target US, Europe

Dubai - Up to $15 billion investment likely in global real estate projects in the near term

By Staff Report

Published: Tue 4 Aug 2015, 12:00 AM

Last updated: Wed 5 Aug 2015, 10:03 AM

Middle East investors will spend $15 billion annually in global real estate markets due to a major shift in investment strategies following decline in oil prices, according to latest report.
Property advisor CBRE Group, in its latest research, said the Middle Eastern investor base has expanded and their buying activity is spreading across gateway markets to second-tier locations in Europe and the Americas.
Referring to latest data, the advisory firm said the Middle East investors invested $5 billion globally in first quarter of 2015 and their prime focus is on key markets in Europe and United States including New York, Washington DC, Los Angeles and Atlanta.
CBRE forecasts that global real estate investment by non-institutional capital from the Middle East will range from $6 billion to $7 billion per annum in the near term, if not higher, increasing from approximately $5 billion per year during 2010 to 2013.
It expects $7 billion to $9 billion per annum of Middle Eastern sovereign wealth funds investment to flow into direct global real estate in the near- to mid-term, compared to what would have otherwise been in the range of $9 to $11 billion per annum had oil prices remained at levels above $100 per barrel.
Nick Maclean, managing director, CBRE Middle East, said the Middle East will remain one of the most important sources of cross-regional capital in the global real estate market.
"The weakening of oil prices is likely to lead to the sovereign wealth funds reducing their total spend but we see strong growth in overseas investment from families and other institutions, in many cases, for the first time," he said.
During 2014, the Middle East invested $14 billion outside of the home region - the third largest source of capital globally.
London, while retaining the top position, is no longer as dominant, with a 32 per cent share of all Middle East outbound investment in 2014, compared to 45 per cent in 2013. Paris and New York followed London, with 15.8 per cent and 9.6 per cent, respectively, of the total outbound Middle East investment.
Middle Eastern investors are becoming more active across a wider range of sectors. This is evident in the US where, historically, these investors have bought office buildings and trophy hotels in New York, Los Angeles and other gateway markets. Competition from Chinese investors and other global capital sources means that these investors are seeking alternatives, such as Abu Dhabi Investment Authority's $725 million acquisition this year of a 14.2 million square feet industrial portfolio.
The potential for non-institutional investors to expand global real estate acquisitions is of growing importance. This trend has had a significant impact on Europe - where their combined real estate investments grew by 56 per cent year-on-year to $4.8 billion. Non-institutional capital accounts for close to 60 per cent of the total Middle Eastern investment in Europe in 2014.
"Private capital from the Middle East is once again becoming a more important investor group globally. The most immediate change will bring down the average lot size, as non-institutional investors tend to target assets at circa $50 million. We expect the Americas region to see more capital flows from the Middle East, with Europe less dominant than it has been over the last five years," said Chris Ludeman, global president, CBRE Capital Markets.
In addition to private capital, SWFs from the Middle East are also expected to remain important market-makers, albeit not as strong in their acquisition strategies as they would have been if oil prices had not fallen. It is very unlikely that regional governments will make radical decisions to affect the existing capital allocations, with only new allocations likely to be affected.
- business@khaleejtimes.com