Due to a mismatch between lack of institutional real estate in domestic markets and cash-rich investors within the Middle East, individual investors and SWFs are looking beyond their borders and into Europe for more viable market play.
Middle Eastern SWFs and private investors are expected to place capital into Europe in the upcoming years
We are accustomed to reading about architectural genius and record breaking development that has shaped the skylines of Middle Eastern countries such as Dubai, Saudi Arabia and Qatar. Though real estate continues to create a new landscape in the Middle East, investors within the same region are placing capital across borders far beyond the amount being placed in their own markets. Based on research by CBRE, Middle East investors are expected to place around $180B into Europe in the upcoming 10 years, made up of $140B in SWFs and $40B being high net worth individuals, property companies and developers.
Based on recent articles, research and recent transactions we are seeing that the favorable market for Middle East SWFs (Sovereign Wealth Funds) and individual investors has become Europe. There is a mismatch of between institutional real estate in domestic markets and the wealthy investors within the region, therefore we are seeing capital being placed outside of their own borders seeking higher yields. The European markets provide diversification, high liquidity, favorable taxation and more cultural acceptance than some other regions. The cultural acceptance plays a huge role according to Iryna Pylypchuk, EMEA Research and Consulting, CBRE, who commented: “Culture, openness and favorable 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.”
From 2007 to 2013, SWFs invested about $45B US of capital into Europe amounting to several times that invested into their own markets. In 2013, 90% of their global investments focused on Europe with 44% of the total placed into London and 15% in Paris. The investment strategy of this capital is a long term play, where investors are seeking opportunities in core markets.
A favorite location remains London’s core office and retail markets. Colliers International Chief Executive Officer of Middle East & North Africa, John D. Davis was recently quoted, “We have also seen Middle East investors play a key role in major deals in Central London during H12014, for example China Life and Qatar Investment Authority taking a 90 percent interest (70 per cent + 20 per cent) in Clifford Chance HQ in Canary Wharf.” Though the majority of the buyers are investing in London, investors are also looking to alternative asset classes namely hotels as well as apartments in other core markets. Some recent examples of acquisitions include Qatar Armed Forces Investment Portfolio acquired the Hotel Renaissance in Barcelona while Qatar Investment Authority invested in portfolio of properties in Madrid, Frankfurt, Amsterdam and Rome.
Given the huge mismatch between supply and demand in the commercial real estate market and wealthy investors, many see the momentum of Middle Eastern investment in Europe only growing in the upcoming years.
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Wendy Sue Messenger works at Fairfield Residential as a Financial Analyst where she supports investor reporting, asset and property management. She is a student at University of San Diego in Master of Science in Real Estate, Candidate 2015.