HSBC Tower, the New Scotland Yard site and the Savoy hotel, all in London are just a few of the prestigious properties acquired by Middle Eastern investors in the last year, the report from international real estate firm JLL reveals.
The Sovereign Wealth Funds of Gulf Co-operation Council (GCC) countries are the region’s most prolific overseas investors and allocated US$4.5 billion to global real estate in the final quarter of 2014, according to figures from JLL.
Of this, over 80% was spent in Europe and more than US$3 billion flowed into London. Private wealth, too, has made its way into Europe’s most prized property assets.
However, while their preoccupation with European cities is well documented, Middle East sovereign investors are beginning to seek assets outside of Europe in a bid to ‘rebalance their portfolios’, according to Fadi Moussalli, head of JLL’s International Capital Group, MENA.
‘The region’s extensive purchasing power has been fuelled by fiscal surpluses from hydrocarbon exports and this has offered investors access to deals in the world’s gateway cities,’ he said.
Historically, the UK has received lion’s share of Middle East investment, followed by France, Germany and the United States. These mature markets have provided a safe haven for Middle Eastern capital but competition from cash rich Chinese investors is forcing these groups to step outside of their comfort zone, Moussalli pointed out.
‘During the global financial crisis Middle Eastern groups were able to acquire property deals that no one else could. Today, there is far more liquidity in the market, not just from Asia but from some US Private Equity Groups and other non-Arab Sovereign Wealth Funds,’ he explained.
He pointed out that trophy assets may rub the egos of the region’s billionaires but suburban office assets and logistics facilities are also proving popular in this current climate. The investment style of these Middle Eastern groups is changing, too. ‘Buying smart is becoming a focus and Sovereign Wealth is now increasingly exploring debt plays, as opposed to direct deals and we’re seeing more and more buy junior debt instruments, for example,’ added Moussalli.
The firm believes that lower oil prices will continue to steer the Middle East’s investment strategy. Although real estate allocations surged in the final quarter of 2014, the effect of ongoing low oil prices will undoubtedly see the Middle East’s global investment scale back, according to David Green-Morgan, Global Capital Markets research director at JLL.
‘Anecdotal evidence suggests that, while existing commitments will continue to be honoured, any new investments from the region are likely to be examined extremely carefully,’ he said.
‘Oil prices dropped in the middle of 2014 and we’re now witnessing the effect of this on the investment intentions of the Sovereign Wealth Funds and private wealth as well as on the wider Middle Eastern economies,’ he added.
Dubai based Moussalli also said that the mood among Middle Eastern investors has changed and this is further reflected in the overall stock index drop. Regional share indices have plunged by up to 40%.
He pointed out that while Middle Eastern money may have financed global property markets since the 1950’s, 2015 looks set to be a pivotal year for the region’s investor’s and that with oil markets in flux one thing is certain; Middle Eastern capital will continue as an important source of cross-border capital in commercial real estate.
‘We have seen many swings and roundabouts with oil prices. During this time Middle East groups have maintained allocations, at varying levels, to global real estate,’ Green-Morgan added.
