New York overtakes London for Middle Eastern property investment

Regional property investors are diversifying their assets, according to CBRE



Middle Eastern investors spent more on real estate in New York in the 18 months to the end of H1 2016 than London, according to CBRE.

In its Middle East ‘In and Out’ 2016, report the real estate consultancy said regional investors remained active buyers despite global economic headwinds in the first half, spending $10bn in total.

However, recent activity showed a departure from historic destinations for Middle Eastern investment, with substantial activity in the US and greater flows to Asia.

This suggests a more balanced distribution of assets that is expected to continue, according to the firm.

During the 18 months from 2015 to H1 2016, New York was the top destination for Middle Eastern investment at $6.5bn, overtaking London at $4.7bn. Singapore ($2.5bn), Hong Kong ($2.4bn), Paris ($2.2bn), and Milan ($1.3bn) were the next most popular destinations.

Read: Middle Eastern buyers to account for up to 30% of London’s home sales

“In spite of oil pricing of between $40 and $50 per barrel, capital leaving the Middle East region has continued to target global real estate markets from H2 2015 to H1 2016,” said Nick Maclean, managing director of CBRE Middle East.

“Sovereign wealth funds have increased their allocation to real estate and family offices and High Net Worth Individuals have increased their overseas spending to achieve greater diversity. London is a key target for this latter group and the combination of a favourable exchange rate and economic growth has led to the institutions looking very closely again at the US.”

CBRE said the Middle East accounted for 22.6 per cent of cross-regional investment in the world’s 25 most popular cities between 2008 and H1 2016, with London seeing by far the most investment from the region at $28.5bn.

Read: Lower Oil Prices Boosting Middle Eastern Real Estate Investment

Sovereign wealth fund activity was also noted in Hong Kong, Milan and Atlanta, while a range of buyers were seen in Houston.

Recent figures have seen diversification from regional investors, with the office sector accounting for 53 per cent of purchases and hotels 17 per cent from 2010 and 2014.

However, in 2015 hotels and offices were tied at 35 per cent each, or $8.2bn, while industrial climbed to 9 per cent compared to 3 per cent in the previous five years.

Inward capital flow to the Middle East region was described as “only marginal” compared to more developed markets in Europe, Asia and the Americas with just a few major institutional real estate investments in the last year.

This was attributed to structural challenges in the market and unwillingness of owners in the region to part with prime assets.

“The Middle East real estate sector continues to offer attractive investment opportunities but so far the market’s full potential is still to be realised amidst limited availability of investment grade product, low investment volumes and a general disconnect between the valuation of buyers and sellers,” said Matthew Green, head of research and consulting, CBRE Middle East.