Whilst it is widely appreciated that the wealth generated in the Middle East from natural resources necessitates international investment, CBRE add interesting observations that regional investors tend to be long-term holders of real estate which restricts intra-regional trading of assets and as a result the majority of regional activity is centred on land and residential units. With such a restricted range of local opportunities it is no wonder that the money spills over to international locations.
The acceleration of international investment by Middle East sovereign wealth funds, high net worth individuals, developers and property companies is most clearly seen in the growth from a recent low of $2 billion in 2009 to $13 billion in 2013, itself a 86% increase over 2012. The biggest growth by investor type is amongst the sovereign wealth funds, with the report commenting that this is motivated by them finding the equity markets too volatile and the bond / sukuk markets too low yielding.
So where is this capital going? Unsurprisingly, over the last two years 44% of it has gone into London. In fact, the top four locations of London, Paris, Milan and Lyon are all European and account for two-thirds of the total, with US destinations further down the list.
As for the future, CBRE predict a huge $180 billion of international investment from the Middle East over the next ten years. They forecast that 80% of this will be heading to Europe, and whilst the UK will remain favourite, a larger proportion than historically the case will be heading to Continental Europe and that within the UK, appetite will continue to broaden to locations across the UK and across a broader range of real estate sectors, as we at 90 North have seen ourselves. The balance of 20% is thought to be split equally between the US and Asia-Pacific.
With projections such as these I’m very optimistic for the prospects of the Islamic real estate industry.