SHARP INCREASE IN GLOBAL CRE INVESTMENT FROM MIDDLE EAST
New York Top Target; Significant Ramping up of Exposure to U.S. Market Substantial Growth in Industrial Investment
New York – September 4, 2016 – 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 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 from the Middle East 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 destinations had previously been under-represented in Middle East investment. This suggests 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.
“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,” said 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 and industrial/logistics will also take an increased share of capital from the region,” he added.
The combination of a favorable exchange rate and economic growth has made the U.S. a leading target for Middle Eastern investors. Purchases of US$9.8 billion in a single year (2015) represents a significant ramping up of exposure to the U.S. market. The sharp jump came partly as a result of two major transactions (Qatar Investment Authority’s purchase of a 44% share in Manhattan West, and ADIA’s acquisition of a U.S. industrial portfolio jointly with CPPIB), which between them totalled well over US$5 billion.
Between 2008 and H1 2016 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.
Of the markets markets where Middle East investors are under-represented and might be targeted in the future, Tokyo and San Francisco are popular destinations for other cross-regional investors, but 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, but to date have attracted very 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 in 2015. 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 investment. Historically less than 5% of Middle Eastern activity, it made up over 9% in 2015. 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.