The amount of money spent by Middle East investors on real estate assets outside of the region more than halved in the 12 months to June 30, according to new research.
Property consultancy CBRE's annual In and Out survey, which measures global capital flows into real estate, stated that investments by Middle East buyers declined to $10.1 billion during the period, down from $21.2 billion the year before.
The report said that fewer global real estate deals were done by regional investors, and those that were done were generally lower in value. The amount invested by the region's big sovereign wealth funds dropped by 17 percent year-on-year to $5.4 billion.
Nick Maclean, managing director of CBRE Middle East, argued that the decline was not a result of lower oil prices, but was more a result of buyers facing more intense competition - especially for trophy buildings - for assets in major global cities from buyers from the Asia Pacific region.
Speaking on the sidelines of the report's launch event at the Dubai International Financial Centre on Monday, Maclean said: "Our capital markets teams around the world tell us that the level of enquiry from people from the GCC [Gulf Cooperation Council] is at least as high, if not higher, than it has been over the last few years.
"So we think the intention and sentiment is the same, but the numbers are not reflecting that."
Jos Tromp, head of research for CBRE's Europe, Middle East and Africa (EMEA) region, said that inflows of capital from Asia Pacific was providing "competition for Middle East investors. This is obviously affecting pricing but also competition for highly liquid assets in global gateway cities," he said.
For instance, in the London commercial property market, buyers from Hong Kong had purchased $5 billion worth of offices during the first nine months of this year alone. Previously, activity from Hong Kong firms in London had been fairly limited, with only $4 billion worth of offices acquired during a 25-year period between 1989 and 2014.
He said that this has been driven by a higher asset allocation from Asian investors towards real estate, but also tightening capital controls in China, meaning that many of these deals were being arranged through Hong Kong.
The United States remains the top investment market for Middle East buyers, but the amount of money invested in this market declined by 62 percent last year to $3.9 billion. Global capital flows into the U.S. have reduced due to concerns about future economic performance and the current political situation, Tromp said.
Meanwhile, global capital flows from outside of the region into the Middle East remain very low. In Dubai, for instance, the bulk of investments are made by private individuals into the residential market. About 89 percent of the 132 billion UAE dirhams ($35.9 billion) worth of property investments recorded by the Dubai Land Department in the first half of this year came from non-UAE nationals, with Saudis being the biggest buyers and land the preferred asset (69 percent of total sales).
However, the market for institutional property investment is much smaller, with just 2.4 billion UAE dirhams worth of deals recorded in the first six months of this year, according to CBRE, citing its own research and investment data by RCA Analytics (although it said that limited transparency on deals meant this figure could be higher).
Maclean said there is plenty of demand but a lack of investment-grade stock in the market.
"If you have an investor, let's say based in Hong Kong or Singapore, come here and say 'please find me a building for $500 million', I can't because they don't exist in the marketplace," Maclean said during a question and answer session at the event.
"We have a number of investors who go away frustrated because we can't show them product in the marketplace."
Jumeirah Central
This was an issue that the team responsible for the $20 billion Jumeirah Central project from Dubai Holding had attempted to address, by creating a masterplan for a series of up to 278 buildings aimed at the investment market.
However, as Zawya reported earlier this month, Dubai Holding has now said it is "revaluating" the project and instead focussing its efforts on schemes that will be ready by Expo 2020.
Maclean told Zawya that while Jumeirah Central "was an interesting scheme", it involved potential investors taking on real estate development risk, which many would shy away from when entering into a new market.
"What we're seeing from investors who want to put a marker down in this marketplace is they want to buy income. If you have Building A on Sheikh Zayed Road which is let to three tenants and producing revenue every year, that is incredibly saleable."
He said that one way the UAE could improve the stock available is for buildings occupied by government occupiers to be offered to the market.
"The government is the largest single occupier of all office stock in this marketplace. That, I think, is an opportunity. [For the government] to continue to be the occupier, do some form of sale and leaseback or create a long leasehold instrument," he said.
He argued that this is a mechanism that hasn't been used in the market thus far "because we haven't needed it".
"Funding for the development of buildings was available, is still available, but this would diversify funding," he said.
© ZAWYA 2017
Property consultancy CBRE's annual In and Out survey, which measures global capital flows into real estate, stated that investments by Middle East buyers declined to $10.1 billion during the period, down from $21.2 billion the year before.
The report said that fewer global real estate deals were done by regional investors, and those that were done were generally lower in value. The amount invested by the region's big sovereign wealth funds dropped by 17 percent year-on-year to $5.4 billion.
Nick Maclean, managing director of CBRE Middle East, argued that the decline was not a result of lower oil prices, but was more a result of buyers facing more intense competition - especially for trophy buildings - for assets in major global cities from buyers from the Asia Pacific region.
Speaking on the sidelines of the report's launch event at the Dubai International Financial Centre on Monday, Maclean said: "Our capital markets teams around the world tell us that the level of enquiry from people from the GCC [Gulf Cooperation Council] is at least as high, if not higher, than it has been over the last few years.
"So we think the intention and sentiment is the same, but the numbers are not reflecting that."
Jos Tromp, head of research for CBRE's Europe, Middle East and Africa (EMEA) region, said that inflows of capital from Asia Pacific was providing "competition for Middle East investors. This is obviously affecting pricing but also competition for highly liquid assets in global gateway cities," he said.
For instance, in the London commercial property market, buyers from Hong Kong had purchased $5 billion worth of offices during the first nine months of this year alone. Previously, activity from Hong Kong firms in London had been fairly limited, with only $4 billion worth of offices acquired during a 25-year period between 1989 and 2014.
He said that this has been driven by a higher asset allocation from Asian investors towards real estate, but also tightening capital controls in China, meaning that many of these deals were being arranged through Hong Kong.
The United States remains the top investment market for Middle East buyers, but the amount of money invested in this market declined by 62 percent last year to $3.9 billion. Global capital flows into the U.S. have reduced due to concerns about future economic performance and the current political situation, Tromp said.
Meanwhile, global capital flows from outside of the region into the Middle East remain very low. In Dubai, for instance, the bulk of investments are made by private individuals into the residential market. About 89 percent of the 132 billion UAE dirhams ($35.9 billion) worth of property investments recorded by the Dubai Land Department in the first half of this year came from non-UAE nationals, with Saudis being the biggest buyers and land the preferred asset (69 percent of total sales).
However, the market for institutional property investment is much smaller, with just 2.4 billion UAE dirhams worth of deals recorded in the first six months of this year, according to CBRE, citing its own research and investment data by RCA Analytics (although it said that limited transparency on deals meant this figure could be higher).
Maclean said there is plenty of demand but a lack of investment-grade stock in the market.
"If you have an investor, let's say based in Hong Kong or Singapore, come here and say 'please find me a building for $500 million', I can't because they don't exist in the marketplace," Maclean said during a question and answer session at the event.
"We have a number of investors who go away frustrated because we can't show them product in the marketplace."
Jumeirah Central
This was an issue that the team responsible for the $20 billion Jumeirah Central project from Dubai Holding had attempted to address, by creating a masterplan for a series of up to 278 buildings aimed at the investment market.
However, as Zawya reported earlier this month, Dubai Holding has now said it is "revaluating" the project and instead focussing its efforts on schemes that will be ready by Expo 2020.
Maclean told Zawya that while Jumeirah Central "was an interesting scheme", it involved potential investors taking on real estate development risk, which many would shy away from when entering into a new market.
"What we're seeing from investors who want to put a marker down in this marketplace is they want to buy income. If you have Building A on Sheikh Zayed Road which is let to three tenants and producing revenue every year, that is incredibly saleable."
He said that one way the UAE could improve the stock available is for buildings occupied by government occupiers to be offered to the market.
"The government is the largest single occupier of all office stock in this marketplace. That, I think, is an opportunity. [For the government] to continue to be the occupier, do some form of sale and leaseback or create a long leasehold instrument," he said.
He argued that this is a mechanism that hasn't been used in the market thus far "because we haven't needed it".
"Funding for the development of buildings was available, is still available, but this would diversify funding," he said.
© ZAWYA 2017
