Summary: What are the key trends in Middle Eastern property investment? A recent PERE conference in Dubai explored the hot topics, with contributions from BLP Real Estate Partner Bonnie Calnan and UAE-based Legal Director Hazel Shakur Quinn.
Middle East investors compete with China and Hong Kong
There is a strong appetite for investment in Germany among Middle East funds, but restricted access to these assets means that activity in this area has so far been limited. 2017 saw sustained interest in London trophy assets, but inbound capital from China and Hong Kong meant that Middle East investors were out-bid on a number of occasions. Sovereign Wealth Funds (SWFs) have been tracking yields, but as a senior manager at Knight Frank noted, High Net Worth Individuals and family offices are more focused on capital growth and the preservation of wealth.
London investment is resilient despite Brexit uncertainty
Last year saw a number of landmark deals in the City, indicating that the London property market remains attractive. BLP advised on two of the biggest transactions; the acquisition of the Walkie Talkie by Hong Kong-based investor Lee Kum Kee conglomerate for £1.28bn and the Cheesegrater for £1.15bn by Hong Kong’s CC Land. The flight of capital from Hong Kong has increased as investors anticipate restrictions on investments abroad.
Conference delegates expected that London would remain a dominant gateway city for investment, but there was interest in how opportunities in Germany and France would develop in the coming years. In particular, the implementation of policies and initiatives by the French President, such as the ‘French Renaissance’, were being watched with interest.
Positive sentiment in the UAE
Investors and fund managers from the UAE welcomed steps by authorities in Abu Dhabi and Dubai to encourage more indirect investment in real estate through the use of Real Estate Investment Trusts (REITs).
REITs have been permitted in the UAE for around a decade but to date most investors have been from within the Gulf Cooperation Council. Conference delegates said that inbound investment could be grown further as this market matures, with a need for an increasingly transparent and robust regulatory framework to reassure investors.
Activity in this area in 2017 included transactions between Residential REIT and the Abu Dhabi Islamic Bank, Arcapita and a large Saudi institution with an aggregated value of $210.2m (AED 772m). The Emirates NBD REIT achieved a net profit of AED 8.5bn, up 15% year on year, a record annual profit.
Investment methods need to be modernised
There was agreement at the conference that investment methods for both General Partners and Limited Partners need to be reviewed and reformed. Delegates expected that this process would deliver improvements in terms of cost reduction and increased control over assets.
Logistics assets are increasingly popular
Delegates said the top asset class for investment is logistics. The reasons for this are complex but a major factor is the growth of online retail, leading to a boom in the warehousing, logistics and delivery sectors. In the US, developers are increasingly exploring ways of combining industrial and residential functions on one site, the so-called ‘beds and sheds’ phenomenon.
A recent survey of the sector, the Agility Emerging Markets Index, indicated that the UAE was the third highest ranked logistics centre out of 50 emerging markets, ranked behind China and India. The UAE scored highly in the compatibility and connectedness measures, and was ranked top for quality of infrastructure and transport.
Japan is encouraging investors to deploy capital abroad
Conference delegates also noted an interesting shift in Japan, where the government is encouraging investors to deploy capital elsewhere. The country currently has a huge pool of capital held in domestic funds, and many investors are looking to London and Paris for attractive yields of around 3%.