New data shows that the richest investors from the Middle East are set to pour billions into European property over the next ten years.
Global property researchers CBRE have estimated that Middle East investors are expected to spend over €145bn in commercial real estate markets outside their own region over the next decade, with 80% of investment earmarked for Europe.
A combination of the lack of institutional real estate in domestic markets and the huge spending power concentrated in the region is driving large-scale investment in global real estate.
Middle East investors particularly drawn to Europe
Europe is the preferred target with around €115bn targeted for the region to 2024. Close to €65bn will flow into the UK, with €46bn directed at continental Europe. France, Germany, Italy and Spain are among key target markets.
The Clifford Chance HQ building, Canary Wharf - 90% financed by Middle East capital
€35bn has been invested by Middle Eastern buyers since 2007 to the end of 2013 – seven times the reported activity in its domestic market. €15bn has been invested outside the home region in commercial property in the last two years alone and there is strong evidence that Middle Eastern players are increasing their interest and investment allocations to direct real estate.
Managing Director of CBRE Middle East, Nick Maclean said: "The 'buy and hold' strategy adopted by many Middle Eastern investors within their home region and the resultant lack of deal flow opportunities leaves much unsatisfied demand here. Coupled with increased confidence in global markets and the need for diversification, overseas investment has grown strongly".
Middle East investment "most significant source of capital"
"Since the Global Financial Crisis, sovereign wealth funds from the Middle East have become one of the most significant sources of capital in the global real estate landscape. The demand from these institutions has evolved during the last few years into a sophisticated source of liquidity for many of the mature real estate markets around the world. This trend is set to continue and with new sources of Middle Eastern capital particularly from Saudi, set to enter the market over the next couple of years, the importance of this region on the global investment stage cannot be understated."
How Marbella's port Al-Thani will look when completed, at a cost of €400m to Qatari investors
Almost 90% of all Middle East commercial real estate investment outside the home region in 2013 was in Europe, in sharp contrast to Asian capital that has become increasingly diverse geographically in the last 18 months. Europe will be the largest beneficiary of Middle East investment as it offers diversification, cultural acceptance, high liquidity and market transparency.
Increase in Sharia-compliant investment vehicles attractive to Middle East buyers
Germany and Italy are key targets with Spain, particularly the hotel sector, now a strategic investment destination. France has developed close ties with Middle East investors in recent years and offers a huge choice of trophy assets which will continue to attract strong demand for core product and sectors.
Jonathan Hull, Managing Director of EMEA Capital Markets for CBRE also commented: "The vast majority of Middle Eastern investors are long-term players looking for wealth preservation and strong high income-producing assets, rather than opportunistic investors playing the cycle for short-term gains. This strategy favours prime buildings in core markets and often very large lot sizes. Offices feature heavily in their acquisitions, while in the last couple of years there has been a greater interest shown in retail as illustrated by a string of high street acquisitions in London and Paris, together with principal cities in the UK and France. Interest in hotels is also noticeable and extends from an historic interest in the hospitality sector in home markets."
More London office complex on right, close to London's new City Hall
Europe's hotel sector significant beneficiary of investment revenues
CBRE's Iryna Pylypchuk added: "Culture, openness and favourable taxation laws are significant push factors for Middle Eastern buyers towards Europe and the UK in particular. Close historical, political and economic relations as well as Britain's recent decision to become the first non-Muslim nation to issue Sharia-compliant Islamic bonds, confirm Europe as the favoured destination for Middle Eastern capital".
According to Colliers International, Middle East investment in Europe rose by 25% year-on-year in the first half of 2014 to €5.9bn, while the total cross-border investment in Europe rose by 32% to reach €44bn. Middle East capital accounted for approximately 13% of cross-border capital coming from outside of Europe and was the second largest investment group into Europe following North America (€18bn).
Hugely increased investor appetite for income-generating assets
John Davis, CEO at Colliers International said: "Middle Eastern buyers are increasingly prepared to venture outside Central London, looking at alternative asset classes such as hotels and serviced apartments in other tier 1 cities. Recent examples include Qatar Investment Authority's acquisition of five more properties to its hotel portfolio located in Cannes, Madrid, Frankfurt, Amsterdam and Rome, while Qatar Armed Forces Investment Portfolio acquired the Hotel Renaissance in Barcelona for approximately €78m".
The stunning facade of Barcelona's Hotel Renaissance designed by Ateliers Jean Nouvel
In particular, Spain has seen a welcome revival in transactions as investors from the Middle East and Asia widen their focus to retail and development opportunities beyond their domestic markets. Cross-border investment in Spain reached €2.3bn in the first half of 2014, up from €780m a year ago.
In terms of residential property investment, significant growth in commercial markets underpins security largely through the creation of employment in areas benefitting from a developed infrastructure. The savvy investor watches commercial markets to see what trends are developing and how they can be harnessed through strategic purchases in corresponding residential markets.
- Thursday 09 October 2014