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Middle East spending on European property falls sharply

The amount of money being put into European property has fallen considerable in 2008 compared with previous years, the data from property consultants CB Richard Ellis shows.

In the first half of 2008 there was €1.77 billion of direct investment in Europe by the Middle East compared to total investment in 2007 of €5.83 billion, €6.92 billion in 2006, €5.84 billion in 2005 and €1.93 billion in 2004.

Projected total investment for this year is €3.54 billion, a sharp fall on the three previous years.

The slump in European property markets and lower oil and equity prices are responsible, according to Nick Axford, head of EMEA research in London at CBRE. They have severely curtailed the spending power of wealthy Middle Eastern real estate investors and Sovereign Wealth Funds (SWFs), historically large buyers of commercial property overseas, especially in London.

'Direct investment in European property from Middle Eastern investors and SWFs is likely to be lower in the short term than we had previously expected due to the on-going uncertainty in the European investment market, lower oil prices which has slowed the flow of money into SWFs, and falling share and bond prices, again reducing the size of assets owned by these funds,' he said.

However, plummeting values in the commercial real estate market in Europe would continue to present good buying opportunities for those with the available funds, he said.

Big Middle Eastern deals in London in the first half of the year include the Qataris' rescue of the $2.8 billion Shard of Glass project in London and St Martins Property Group, the real estate arm of the Kuwait Investment Authority, paying $642 million for the landmark Willis Building in the City of London.

And the National Bank of Abu Dhabi has just announced plans to set up a joint venture fund with a target size of $500 million with London-based Evans Randall to offer mezzanine investments in European real estate.

The joint venture will focus on the British and German markets and seek to capitalise on the growing gap in the capital structure of property investments between senior debt and common equity, NBAD said in a statement.

Looking to the future, CBRE predicts that in the long term Middle Eastern property investments in Europe will increase. Analysts forecast that SWFs will own between 15 and 20% of international property by 2015.