London was the top city destination for Middle Eastern investment in the 12-month period from Q2 2016 to Q2 2017 at $1.68 bn (€1.45 bn), according to CBRE’s Middle East ‘In and Out 2017’ report.
New York ranked second at $820 mln, while Washington D.C. completed the top three with $469 mln of investment.
The Middle East’s total outbound capital flows into global commercial real estate (CRE) reached $10.1 bn between Q2 2016 and Q2 2017. Despite a slowdown in outbound investment compared to the previous year, the Middle East remains a major source of capital globally, representing 8% of total cross-regional investments. The slowdown was due to a decline in the total number of deals involving Middle East capital as well as a lack of large transactions, the majority of which have been bought by Asian investors in the last 12 months.
While international investors generally remain largely focused on the traditional commercial real estate sectors such as offices, retail and logistics, Middle East investors typically have a strong appetite for alternative asset classes such as hotels, residential, student housing, healthcare as well as infrastructure. Investors from the Middle East remain active buyers and continue to target core assets with long leases in safe haven locations. The UAE, for example has made major investments in large-scale infrastructure projects in the UK, such as Gatwick Airport.
In line with previous years, SWFs remain the main source of capital for investments from the Middle East. Outbound investments by SWFs witnessed a decline of 17% year-on-year, but still acquired $5.4 bn in real estate assets globally. Certain SWFs continued to deploy capital into real estate, with funding coming from oil revenues, returns from assets under management and a higher allocation to alternatives. High-net-worth individuals and private investors were less active compared to previous years, indicating that this group might be more susceptible to adverse market conditions.
'In spite of fluctuating oil pricing, capital leaving the Middle East region has continued to target global real estate markets,' commented Nick Maclean, managing director, CBRE Middle East. 'Investors have expressed their intention to increase global real estate spending, as a proportion of all investment asset allocations. This is driven by a perceived need to diversify income streams by asset class and geography.'
Chris Brett, head of International Capital Markets, CBRE UK commented: 'In the past year we have seen Middle East investors securing opportunistic acquisitions in the capital, most notably family wealth from UHNWIs and SWFs. Whilst this has partly been driven by a correction in yield levels and a favourable currency effect due to the depreciation of sterling, it reaffirms London’s status as a global gateway market.'
