The flow of Middle Eastern money targeting global commercial real estate (CRE) has risen sharply in the first six months of the year, according to a new report from CBRE.
Middle Eastern investment in global CRE reached nearly $10 bn (€8.9 bn) in H1 2016, with investment markets becoming more diverse, says the research.
'The destinations of investment flows from the Middle East are no longer solely concentrated on London and New York City. Other US cities such as LA, Washington, DC, Atlanta, and Miami, as well as Asian markets are moving up on their agenda. The major Australian cities could be next,' commented Chris Ludeman, global president, CBRE Capital Markets.
'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 attract an increased share of capital,' Ludeman added.
Despite an overall slowdown in investment turnover, 20% of global cross-border flows came from the Middle East, amounting for nearly $9.8 bn. CBRE said that since being at the bottom of the market in 2009, investment from the Middle East has grown much faster than the market as a whole and faster than any other cross-regional capital source.
The report found that the sharp increase in investment was driven by Sovereign Wealth Funds (SWFs) – in particular those from Qatar and the United Arab Emirates (UAE). Capital flows are expected to remain high as local SWFs increase the weighting of their portfolios and include a higher proportion of property.
New York ($6.5 bn) was the top destination for Middle Eastern investment in the 18-month period from 2015 to H1 2016, followed by London ($4.7 bn), Singapore ($2.5 bn), Hong Kong ($2.4 bn), Paris ($2.2 bn), and Milan ($1.3 bn).
Europe a strong draw
While the combination of a favourable exchange rate and economic growth has made the US a leading target for Middle Eastern investors, Europe still possesses a strong draw. Between 2008 and H1 2016, in absolute terms, London ($28.5 bn) has seen by far the most investment from the Middle East. The purchase of major strategic assets in Hong Kong, Milan and Atlanta by SWFs account for the over-representation of Middle Eastern investors in those markets, the report said.
Diversification by asset type is also influencing the evolution of Middle Eastern investment activity. Between 2010 and 2014, office assets dominated purchases, accounting for 53% of the total, with hotels a distant second at 17%. In 2015, hotels and offices were tied, with purchases totalling $8.2 bn (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. The industrial sector typically makes up a larger proportion of the market in North America than in other regions; if the strong flows into that region continue, so too should the growth in industrial investment, CBRE said.
