Why Middle Eastern private capital is hungry for investment
Private investors from the Middle East are targeting real estate in Europe and North America.
Private Middle Eastern investors have been increasingly active across Europe and North America as their sovereign wealth fund peers ease investment activity due to static oil prices.
In the first six months of this year, over US$1 billion was invested into European real estate by Middle Eastern private investors and institutions including family offices and high net worth individuals.
Europe's office and industrial markets have proved particularly popular, explains Fadi Moussalli, Head of International Capital Coverage for JLL in the Middle East and North Africa. "We see a particular preference for offices in large European cities - and by no means is that exclusive to capital cities," he says.
In the UK, private Middle Eastern investors have ploughed investment into secondary cities such as Birmingham and Leeds and more recently Glasgow, where Saudi Arabian investment manager Arbah Capital bought a city centre retail asset for GBP 55 million.
Kuwaiti and Bahraini capital has accounted for the lion's share of transactions carried out in the first six months of this year, with deal sizes ranging from US$7 million to US$200 million.
"These are by and large cash-on-cash driven investors, pooled into consortiums organised by very knowledgeable and well-connected syndicators," explains Moussalli, who estimates that net returns of at least seven percent are typically targeted by Middle Eastern private investors and institutions.
Emerging demand from Lebanese investors
In the past 2 years, Lebanese investors have been particularly active overseas, with real estate abroad offering safety at a time of acute economic uncertainty and strong pressure on the banking system back home.
It remains to be seen if Lebanon can avoid a major debt crisis and uncertainty in the market has encouraged investors to look further afield. Investors such as the Saradar Family Office Group have invested in multifamily assets across the globe and major cities with Lebanese communities, such as London, have been popular.
“The uncertainty has created what is a fertile ground for Beirut-based investment platforms and multifamily offices to propose options that walk and talk like a bank deposit,” explains Moussalli. “Assets offering steady, reliable, predictable rental income have been a natural choice.”
And, Lebanese investors can invest with slightly less restriction than some of their Middle Eastern peers.
“Sharia compliance is less of an obligation for Lebanese investors and this tends to give them a little more flexibility when seeking real estate opportunities in overseas markets,” says Moussalli. “For the investment managers, it allows a wider range of options to be offered.”
Looking beyond traditional favourites
Alternative sectors such as student housing, senior housing and data centres as well as less traditional investment hotspots including Central and Eastern Europe, Africa and tertiary US cities are on their shopping list.
“In order to get that yield pick-up, they’re willing to pursue what could be regarded as a less conservative choice of assets,” Moussalli says. “That openness among what are historically relatively new entrants requires investment managers to propose creative products and think outside of the beaten tracks.”
Late last year, Beirut’s Cedrus Invest Bank joined forces with European investment manager Avignon Capital to invest in a grade A office scheme in Amsterdam.
Moussalli says private capital will continue to flow from the wider Middle East region in the coming months.
“Investment by private wealth will continue to outshine that of SWFs if oil prices remain where they are,” he says. “The continued challenge will be finding a home for capital in an increasingly tight global real estate market.”