Viewpoint – Falling oil prices…time to buy a Rolex!

Categories: Viewpoint

My observation in December last year that Middle East investor interest in real estate was increasing as the oil price fell has now been substantiated by Savills’ latest research.

Looking back at data for the last 30 years they have identified that real estate investment rises when oil prices fall, with a potential £7-10 billion allocation to the European markets, observing that the falling price’s impact on their domestic economy serves as a reminder of the need to diversify away from non renewable energy sources.

Whilst they project that this could mean a greater allocation to emerging markets, they also rightly record the eternal affinity that the Middle East has with Central London, commenting that “Middle Eastern investors accounted for 11% of the Central London market last year at circa £2.4 billion, and we would suggest that their spend will increase over the next year in line with previous falls in oil prices.”

Providing almost instant evidence of this, apart of course from the headline news of Qatar’s acquisition of Songbird Estates’ Canary Wharf which has been widely publicised, was news this week of a client of Knight Frank, understood to be from Saudi Arabia, paying a yield of just 1.7% for the Rolex store within Candy & Candy’s One Hyde Park development in Knightsbridge. This makes the purchase by a Hong Kong investor of the McLaren car showroom next door at a heady yield of 3.3% in 2011 look very shrewd.

Whilst I continue to argue that “return on equity” is more important to investors than “return on ego” I guess it is fair to assume that both the heart and the mind ruled this acquisition, but you can’t argue against the scarcity that such an investment opportunity represents, particularly with a lease of more than 10 years remaining. Meanwhile, with a low headline rent less than 50% of the levels achieved nearby, there is plenty of room for rental growth.

I hope they’re able to negotiate a landlord’s discount…diversification has never been so fun!

 

Author Philip Churchill