Middle East outbound capital flows into global commercial real estate reached nearly US$10 billion in H1 2016, with the markets targeted becoming more diverse, according to the latest research from global property advisor CBRE Group, Inc.
Investors from the Middle East have remained active buyers despite a slowdown in global investment turnover in H1 2016. Purchases of nearly US$9.8 billion account for over 20% of global cross-regional investment in H1 2016. Since being at 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 are expected to remain high as SWFs increase the weighting of their portfolios and include a higher proportion of property.
New York (US $6.5 billion) was the top destination for Middle Eastern investment in the 18-month period from 2015 to H1 2016, followed by London (US$4.7 billion), Singapore (US$2.5 billion), Hong Kong (US$2.4 billion), Paris (US$2.2 billion), and Milan (US$1.3 billion). The targeted destinations show a departure from recent history, with substantial activity in the U.S. and greater flows to Asia. Both of these regions had previously been under-represented in Middle East investment. This suggest a move to a more balanced distribution of assets to achieve greater diversification. With substantial ground still to make up, this trend can be expected to continue.
Sydney was the highest ranking Pacific destination, attracting $US404 million in investment.
“The destinations of investment flows from the Middle East are becoming more diverse and are no longer just concentrated in London and New York. Other U.S. cities such as Atlanta and Asian markets are moving up their agenda. The major Australian cities could be next. We expect investment flows from the Middle East to be substantial for the near future–interest in the hotels sector will remain strong, while the industrial and logistics sector will take an increased share of capital,” said Chris Ludeman, Global President, CBRE Capital Markets.
The National Director of CBRE’s Australian Capital Markets team, Josh Cullen, agreed that there was potential for increased investment in Australia, particularly in the major eastern seaboard markets.
“In recent times we have seen limited investment from the Middle East, however they are major global players and the returns available in markets such as Sydney, Melbourne and Brisbane should be attractive to these groups moving forward,” Mr Cullen said.
The combination of a favorable exchange rate and economic growth has made the U.S. a leading target for Middle Eastern investors. The Qatar Investment Authority (QIA), recently purchased a 9.9% stake in the company that owns New York's iconic Empire State Building for $622 million. Purchases of US$9.8 billion in a single year in 2015 represents a significant ramping up of exposure to the U.S. market. This increase came partly as a result of two major transactions (QIA’s purchase of a 44% share in Manhattan West; Abu Dhabi Investment Authority’s acquisition of a U.S. industrial portfolio jointly with Canada Pension Plan Investment Board), which between them totalled well over US$5 billion.
Between 2008 and H1 2016 the Middle East accounted for 22.6% of cross-regional investment in the world’s 25 most popular cities for foreign acquistions. In absolute terms, London (US$28.5 billion) has seen by far the most investment from the Middle East. The purchase of major strategic assets by SWFs in Hong Kong, Milan and Atlanta accounts for the over-representation of Middle Eastern investors in those markets, whereas Houston has attracted investment from a range of different buyer types.
Markets where Middle East investors are underrepresented may also be targeted in the future. Tokyo and San Francisco are popular destinations for other cross-regional investors and have attracted far less than their fair share of Middle Eastern capital. Sydney, Melbourne and Brisbane all feature in the top 25 destinations for cross-regional investment; to date they have attracted little investment from the Middle East.
Diversification by asset type is also influencing Middle Eastern investment activity, with the sector split seeing a material change last year. Between 2010 and 2014 the office sector dominated purchases by Middle East investors, accounting for 53% of the total, with hotels a distant second at 17%. In 2015 hotels and offices were tied, with purchases totalling US$8.2 billion (35% of the total) in each sector. Industrial also saw a sharp increase in 2015 to 9% of the total compared to just 3% over the previous five years. Industrial is typically a bigger proportion of the market in North America than in other regions, so if the strong flows to that region continue, so too should the growth in industrial investment.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
