x Abu Dhabi, UAEFriday 28 July 2017

Middle Eastern sovereign funds seek new assets

Middle Eastern sovereign wealth funds are likely to set their sights beyond their traditional investments of trophy assets in London over the next two years as spending levels climb back towards boom levels.

Middle Eastern sovereign wealth funds are likely to set their sights beyond their traditional investments of trophy assets in London over the next two years as spending climbs back towards boom levels.

Economists at CBRE said yesterday that investment flows from the Middle East into European property totalled about Dh20.2bn (US$5.5bn) last year - about 90 per cent of all Middle Eastern investment into property outside of the region.

The researchers said this figure was more than 50 per cent up on the previous year but still well down on the Dh25.7bn invested during the property boom of 2007.

Sovereign wealth funds attempt to invest surplus cash made by their own countries from activities such as oil exports into assets that will provide them with a stable income in the future.

"Most Middle Eastern investors have been cautious in recent years and have mostly focused on prime properties in big, mostly capital, cities," said Neil Blake, the head of research for the United Kingdom and Europe, the Middle East and Africa at CBRE.

"As the European economies recover, as we expect them to do over the next two to three years, more 'less risky' investment opportunities will become available in what are now perceived to be secondary markets and we would expect Middle Eastern investment to build back up towards the 2007 peak figure."

Mr Blake added that sovereign wealth funds, which in the years immediately after the downturn had restricted their investments to perceived havens such as prime central London, Paris and Frankfurt, were likely to start to look to other property markets.

Last year, as well as investing heavily in London and Paris, a number of Middle Eastern sovereign wealth funds purchased property in areas outside these areas. These included Abu Dhabi Investment Authority, which bought the 63,000-square metre Zuidenport office park in the Belgian city of Ghent for about €110 million (Dh539.1m) and the prolific Qatar Investment Authority, which purchased the 43,700 sq metre Miasteczko Orange office complex in Warsaw.

"In the years of 2008 and 2009 we had an initial price drop - particularly in the UK - and people piled in then to buy things and they continue to invest but only at the very top end of the market. The rents haven't recovered by the yields went way down," said Mr Blake.

"However, if you go outside of those areas, that's where the bargains are potentially but there is also more risk.

"And an increasing number of players are looking at taking those risks but at the moment Middle Eastern investors are probably a bit too cautious to be among these."

 

lbarnard@thenational.ae