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Arab investment trends

Nick Maclean

Q & A with Nick Maclean, Managing Director, CBRE Middle East

1 April 2014

London continues to be a perennial favourite for the Arab investor – what according to you are the factors driving this popularity?

London continues to remain the destination of choice for foreign investors due to its solid growth potential and its status as a global financial hub, alongside its stable political environment and a transparent legal system. Culture, openness and favourable taxation laws are also a significant push for Middle Eastern investors to invest in London’s realty. Additionally, UK’s decision last year to become the first non-Muslim nation to issue Sharia-compliant Islamic bonds, confirm Europe as the top destination for Middle Eastern capital.

Outline top markets that are seeing a significant inflow from the Arab investor? What makes these attractive property hotspots?

London and Paris have historically attracted a very high proportion of total investment from the Middle East and broadly speaking we expect this to remain the case.

However, Middle Eastern investors are increasingly diversifying their assets and looking beyond traditional hot markets such as London. Therefore, we expect to see a greater amount of investment to Germany and to other parts of the UK in the short term.

What are some the emerging real estate markets that are keen to attract Arab investors?

Spain is a becoming a strategic destination, particularly focused around the hotel sector. France, having developed close ties with Middle Eastern investors, is offering a vast choice of trophy assets and continues to attract strong demand for core assets and sectors. In the long term, Middle Eastern investors are also looking for ways of putting more capital into both the Americas and Asia.

Typically what sets the Arab investor apart from other groups or nationalities? What do they look for?

Over the last decade the two principle sources of investment coming from the region have been from SWFs and private investors. However, in recent times SWF capital has dominated the flows from the Middle East. The reason for increased investment from regional SWFs in international property is to save capital for the long term whilst not creating a local asset bubble.

In terms of target segments, Middle Eastern investors are disproportionately invested in offices (about 55% of investment by value over the last 10 years). Offices obviously make sense for overseas investors because of the significant numbers of large lot size transactions and the ease of management once purchased.

However, interestingly, in the last couple of years Middle Eastern investors have also started to show greater interest in retail as was illustrated by a string of high street retail acquisitions in London and Paris. Interest in hotels is also noticeable and extends from a life-long affair with the hospitality sector in home markets.

How are developers and markets attracting the Arab investor?

Markets that balance security (rule of law) with opportunities; that offer good returns invariably attract strong demand and therefore high levels of liquidity.

Where developers from these markets then offer a successful track record and expertise the story for investors becomes compelling.

Markets with all these ingredients always attract a disproportionate level of inbound investment.

Share some statics in terms of how much of the market share do Arab investors account for globally and in these markets; what has been the growth in the past five years and outlook for 2015.

According to CBRE’s 2014 ‘Middle East: In and Out’ report, Middle Eastern investors are expected to spend US$180 billion in commercial real estate markets outside of their own region over the next decade. The major increase in flows of Middle Eastern capital into global markets is emerging from the extraordinary mismatch between the lack of institutional real estate in domestic markets and the huge spending power concentrated in the region.

Europe is the preferred target with 80 percent of the US$180 billion (around US$145 billion) targeted for the region over the next 10 years. Close to US$85 billion will flow into the UK, with USD$60 billion directed at continental Europe. France, Germany, Italy and Spain are among the key target markets.