My theory, supported by client conversations, is that investors have not deployed the level of capital they wanted and so cannot take their foot off the gas just yet. A third of the year has already passed, and while data on the level of Islamic real estate investments is very hard to come by, anecdotally I do not recall seeing the same level of property acquisition announcements in the pages of Islamic Finance news compared with previous years.
I am sure that this is not through a lack of appetite or indeed effort among Shariah compliant investors, so the issue may be one of supply. Are the deals there to be done?
Working through the research paints a slightly mixed picture. CBRE reported that the overall volume of US real estate investments in the first quarter of 2018 fell 14% compared with the fourth quarter of 2017, but it rightly pointed out that fourth quarters tend to be among the busiest anyway and that the fall was not as much as could reasonably have been expected. Interestingly, multifamily residential overtook offices as the largest sector for investment, and cross-border investment was actually up.
For the UK, CoStar reported the biggest quarterly drop in acquisition activity in 10 years. It would be easy to blame Brexit, but while some are put off by this, most investors I speak to are more than happy to continue to invest. From our own experience, we believe this is due to a lack of opportunities. Existing landlords are holding on to their investments, so the turnover is materially down. CoStar reported that such investment volumes would have been down even further were it not for activity in the student accommodation and hotel sectors, both materially up.
For Europe, the position is somewhat in the middle. Real Capital Analytics is of the opinion that there was a 27% decline compared with the same quarter in 2017, resulting in the weakest quarter for four years, and that all of the main real estate sectors fell.
The summer tends to provide quiet months when it comes to finding new opportunities, so perhaps it will be a few months before a flurry of activity is witnessed, but I do not believe that this will stop investors looking. Waiting another four months is not an option for many and I hope that the Islamic real estate industry can continue to source these ever rarer opportunities. No summer slowdown this year.
Original article appeared in Islamic Finance News.