MidEast investors eye $180bn overseas spending

Arab institutional investors have been buying up swathes of European cities, with London the firm favourite. As new research estimates that $180bn will be invested by Middle East funds outside their home market in the next decade, we look at the factors and trends influencing this massive cash trail

Each year in London, it is commonplace to witness a stream of flashy Lamborghinis, Ferraris, Bentleys and Rolls-Royces around the city’s most lucrative and expensive districts. It has become a by-product of the London love affair Arab buyers have with the British capital.

The Shard — Western Europe’s tallest building — is owned by Qatar. Harrods, the iconic department store also is on the country’s books as another high-profile investment asset. From passengers moving through Heathrow Airport to the food bought in Sainsbury’s supermarkets and the Moet champagne being drunk in the most upmarket London clubs, Qatar — or one of its fellow high-rolling Arab neighbours — has its fingers in many diverse sectors.

In fact, in the past two years alone, Middle Eastern investors have ploughed $20bn into commercial property outside their home region and new research shows this trend is not slowing down, with strong evidence showing that they are increasing their interest and investment allocations towards direct real estate.

In a recent comprehensive research paper, market analyst CBRE estimates that Middle Eastern investors will inject at least $180bn into global commercial real estate markets outside their own region over the next decade.

From football stadiums in Manchester to suburbs in France or iconic buildings in Italy, Europe is the clear target for Middle Eastern investors and it is estimated that it will be the recipient of 80 percent of the $180bn cash pool available to sovereign wealth funds over the next ten years. Of this, CBRE estimates that close to $85bn will be heading to the UK alone.

“Culture, openness and favourable taxation laws are significant push factors for Middle Eastern buyers towards Europe, and the UK in particular. Close historical, political and economic relations, as well as Britain’s recent decision to become the first non-Muslim nation to issue Sharia-compliant Islamic bonds, confirm Europe as the top destination for Middle Eastern capital,” says Jonathan Hull, managing director of capital markets for Europe, Middle East and Africa at CBRE.

The forecasts show continental Europe is expected to receive a total allocation of around $60bn — more than five times the level of direct investment by Middle Eastern investors in the previous ten years.

“Germany and Italy are also key targets, while Spain is becoming a strategic destination, particularly focused around the hotel sector. France, having developed close ties with Middle Eastern investors and offering a vast choice of trophy assets, continues to attract strong demand for core assets and sectors,” Hull says.

“The vast majority of Middle Eastern investors are long-term players, looking for wealth preservation and strong high income-producing assets, rather than opportunistic investors looking to play the cycle for short-term gains. This strategy means that their asset preferences are directed towards prime buildings in core markets, quite often very large in terms of lot size.

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