CBRE: Mideast CRE Spending Tops $10B

The U.S. was the top destination year-over-year as of the second quarter, with volume reaching $3.9 billion.

Chris Ludeman, Global President, Capital Markets, CBRE
Chris Ludeman, Global President, Capital Markets, CBRE

Despite some investment constraints due to low oil pricing, Middle East investors spent $10.1 billion on global commercial real estate assets in the year between the second quarter of 2016 and 2017, focusing much of their attention on New York City and Washington, D.C.

The U.S. was the top country destination in the time period for Middle East investors with volume reaching $3.9 billion. New York City received $820 million in investments, followed by Washington, D.C., with $469 million, according to a CBRE research report. London, with $1.68 billion in Middle East investments, topped the list.

While there had been some decrease in outbound investments compared to earlier years, the Middle East remains a major source of capital globally, representing 8 percent of total cross-regional investments between Q2 2016 and Q2 2017.

“Investors from the Middle East remain active buyers in the global real estate market and continue to target core assets with long leases in safe-haven locations. The recent decline in oil prices only strengthened the case for investors to diversify their income streams, both in terms of asset classes and geographies; they are taking a long-term view,” Chris Ludeman, Global President, Capital Markets, CBRE, said in a prepared statement.

Investors eye core assets

Citing an improving global economy, strong economic performance in the U.S. and Europe, as well as an uptick in rental growth in developed economies, the CBRE report stated that Middle East investors appear intent on increasing their global real estate spending.

“While investors from other global regions are largely focused on the traditional commercial real estate sectors such as offices, retail and logistics, Middle Eastern buyers typically have a strong appetite for alternative asset classes such as hotels, residential, student housing and health care, as well as infrastructure,” Ludeman added.

The report said Middle East investors typically use a long-term approach “with a clear focus on core opportunities, preferably with long leases to help secure a long-term, stable income.” However, the report noted they are facing competition, mainly from Asian buyers who have also been active, particularly in the U.S.

“It is becoming increasingly challenging to secure core assets with long leases in the current market environment, particularly with Asian buyers raising exposure to this segment, meaning investors need to be aggressive to win deals. Despite the impact on short-term outflows, the Middle East region remains an important source of global capital with buying activity likely to increase over time,” Ludeman said.

As in previous years, the sovereign wealth funds remain the largest source of Middle Eastern capital. The report noted SWFs acquired $5.4 billion in real estate assets globally between Q2 2016 and Q2 2017. But it was a 17 percent decline year-over-year in global CRE investments. The report also found high net worth individuals and private investors from the Middle East were less active in that period, indicating “this group might be more susceptible to adverse market conditions.”

Image courtesy of CBRE