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Wed 17 Dec 2008 06:10 AM

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Mideast investment in Euro commercial real estate falls

Research suggests lower oil, equity prices has hit spending power of region's wealth funds.

Middle East investment in European commercial property in 2008 is down significantly on previous years, according to the latest data from property adviser CB Richard Ellis (CBRE).

There was €1.77 billion ($2.42 billion) of direct investment in Europe by the Middle East in the first half of 2008, compared to total investment in 2007 of €5.83 billion, €6.92 billion in 2006, €5.84 billion in 2005 and €1.93 billion in 2004, according to the research.  

Projected total investment this year by doubling the first half 2008 figure of €1.77bn, equals €3.54 billion, a sharp fall on the three previous years.

Nick Axford, head of EMEA research in London at CBRE said the slump in the European commercial property market along with lower oil and equity prices has hit the spending power of wealthy Middle Eastern real estate investors and Sovereign Wealth Funds (SWFs), historically large buyers of commercial property overseas, especially in London.

“Direct investment in European property from Middle Eastern investors and SWFs is likely to be lower in the short term than we had previously expected due to the on-going uncertainty in the European investment market, lower oil prices which has slowed the flow of money into SWFs, and falling share and bond prices, again reducing the size of assets owned by these funds,” he said.

While the pressure on the Middle East ‘to invest has eased’, Axford added, plummeting values in the commercial real estate market in Europe would continue to present good buying opportunities.

Big Middle Eastern deals in London in the first half of the year include the Qataris’ rescue of the $2.8bn Shard of Glass project in London and St Martins Property Group’s -the real estate arm of the Kuwait Investment Authority- $642 million purchase of the Willis Building in the City of London.

However, in the long term, Middle Eastern money will increase its spending on global real estate, CBRE predicted.

SWFs are forecast to own between 15-20 percent of international property by 2015.

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