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ME investors to spend $180bn in real estate over next decade

Middle East Sovereign Wealth Funds (SWFs) are now among the world’s largest and most influential sources of capital

Source : Saudi Gazette / 17 Jun 2014

Middle Eastern investors are expected to spend $180 billion in commercial real estate markets outside of their own region over the next decade, the latest research from global property advisor CBRE revealed.

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

Global real estate markets have seen significant inflow of Middle Eastern capital with $45 billion invested between 2007 and the end of 2013 – seven times the reported activity in its home market. With $20 billion invested outside their home region in commercial property in the last two years alone – there is strong evidence that Middle Eastern players are increasing their interest and investment allocations to direct real estate.

Middle East Sovereign Wealth Funds (SWFs) are now among the world’s largest and most influential sources of capital, accounting for 35 percent of SWFs Assets Under Management (AUM) globally. When compared to Western and Asian SWFs, these funds currently allocate the smallest share (9 percent of total portfolio) to alternative assets. A further increase in allocation by Middle East SWFs, even by a small fraction, represents an extremely large amount of capital that would have a significant impact on the global commercial real estate market.

The average target allocation to real estate by global SWFs is 7.9 percent. Applying this to the $2.2 trillion in AUM held by Middle Eastern SWFs gives a total close to $175 billion. CBRE has explored a range of scenarios, including faster and slower growth of AUM by SWFs; a conservative estimate puts investment in global real estate by Middle Eastern SWFs at $130-140 billion over the next decade. Taking this figure with the expected spending of private Middle Eastern investors, as well as property companies and developers, equates to around $180 billion that will flow cross-border and into global markets over the next ten years.


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