Sharp Increase in Global CRE Investment from Middle East
Sharp Increase in Global CRE Investment from Middle East
September 13, 2016
Atlanta Ranks Among Top 10 Markets for Middle Eastern Investment
Los Angeles, CA – September 12, 2016– Middle East investment in global commercial real
estate reached nearly US$10 billion in H1 2016, with the target markets becoming
more diverse and a substantial uptick in activity in the U.S., according to the
latest research from global property advisor CBRE Group, Inc.
Atlanta was the ninth most popular destination
globally for Middle East investment in the 18-month period from 2015 to H1
2016, accounting for US$852 million of activity; the fourth overall among U.S.
Several key Atlanta assets have or continue to
attract Middle East investment capital including Paces West on Paces Ferry Road,
which is owned by Investcorp; and Concourse I, II, IV, V and VI, owned by ADIC.
“Recently the Atlanta
market has seen significant Middle Eastern and other offshore capital investments
in the office sector due primarily to the positive fundamentals of the office
market,” said Will Yowell, vice chairman, CBRE.
“The lack of new
construction this cycle combined with steady absorption of space and growth of
existing businesses makes Atlanta an attractive place to invest capital and
provides attractive risk adjusted returns. Additionally, the direct access via
Hartsfield Jackson International Airport, well-educated work force, attractive
cost of living and diverse nature of the overall economy and businesses that
operate here attract Middle Eastern investors,” added Mr. Yowell.
Investors from the Middle East have remained active
buyers despite a slowdown in global investment turnover in H1 2016. Purchases
of nearly US $9.8 billion account for over 20% of global cross-regional
investment in H1 2016. Since being at the bottom of the market in 2009,
investment from the Middle East has grown much faster than the market as a
whole and faster than any other cross-regional investment. The sharp increase
in investment was driven by Sovereign Wealth Funds (SWFs)–in particular those
from Qatar and the UAE. Capital flows are expected to remain high as SWFs
increase the weighting of their portfolios and include a higher proportion of
New York (US$6.5 billion) was the top destination
for Middle Eastern investment in the 18-month period from 2015 to H1 2016,
followed by London (US$4.7 billion), Singapore (US$2.5 billion), Hong Kong
(US$2.4 billion), Paris (US$2.2 billion), and Milan (US$1.3 billion).The target
destinations show a departure from recent history, with substantial activity in
the U.S. and greater flows into Asia. Both of these regions had previously been
under-represented in Middle East investment. This suggests a move to a more
balanced distribution of assets to achieve greater diversification. With
substantial ground still to make up, this trend can be expected to continue.
The combination of a favorable exchange rate and
economic growth has made the U.S. a leading target for Middle Eastern
investors. The Qatar Investment Authority (QIA), recently purchased a 9.9%
stake in the company that owns New York's iconic Empire State Building for $622
million. Purchases of US$9.8 billion in a single year in 2015 represents a
significant ramping up of exposure to the U.S. market. This increase came
partly as a result of two major transactions (QIA’s purchase of a 44% share in
Manhattan West; Abu Dhabi Investment Authority’s acquisition of a U.S.
industrial portfolio jointly with Canada Pension Plan Investment Board), which
between them totaled well over US$5 billion.
“The destinations of investment flows from the
Middle East are becoming more diverse and are no longer solely concentrated on
London and New York City. Other U.S. cities such as L.A., Washington, D.C., Atlanta,
and Miami, as well as Asian markets are moving up on their agenda. The major
Australian cities could be next. We expect investment flows from the Middle
East to be substantial for the near future–interest in the hotels sector will remain strong, while the industrial
and logistics sector will attract an increased share of capital,” said Chris
Ludeman, Global President, CBRE Capital Markets.
Diversification by asset type is also influencing
Middle Eastern investment activity, with the sector split seeing a material
change last year. Between 2010 and 2014, the office sector dominated purchases
by Middle Eastern investors, accounting for 53% of the total, with hotels a
distant second at 17%. In 2015, hotels and offices were tied, with purchases totaling
US$8.2 billion (35% of the total) in each sector. Industrial also saw a sharp
increase in 2015 to 9% of the total, compared to just 3% over the previous five
years. The industrial sector typically makes up a larger proportion of the
market in North America than in other regions; if the strong flows into that
region continue, so too should the growth in industrial investment.
Between 2008 and H1 2016, the Middle East accounted
for 22.6% of cross-regional investment in the world’s 25 most popular cities
for foreign acquisitions. In absolute terms, London (US$28.5 billion) has seen
by far the most investment from the Middle East. The purchase of major
strategic assets in Hong Kong, Milan and Atlanta by SWFs account for the
over-representation of Middle Eastern investors in those markets, whereas
Houston has attracted investment from a range of different buyer types.
Markets where Middle Eastern investors are
underrepresented may also be targeted in the future. Tokyo and San Francisco
are popular destinations for other cross-regional investors and have attracted
far less than their fair share of Middle Eastern capital. Sydney, Melbourne and
Brisbane are all featured in the top 25 destinations for cross-regional investment;
to date, they have attracted little investment from the Middle East.
About CBRE Group, Inc. CBRE Group, Inc.
(NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles,
is the world’s largest commercial real estate services and investment firm
(based on 2015 revenue). The Company has
more than 70,000 employees (excluding affiliates), and serves real estate
investors and occupiers through more than 400 offices (excluding affiliates)
worldwide. CBRE offers a broad range of
integrated services, including facilities, transaction and project management;
property management; investment management; appraisal and valuation; property
leasing; strategic consulting; property sales; mortgage services and
development services. Please visit our
website at www.cbre.com.