Overseas real estate transactions from Middle East to pick up together with increasing oil prices

With oil prices above $70 per barrel for the first time since 2014, overseas real estate transaction volumes by Middle Eastern buyers are set to pick up, reflecting adjustment in investors' strategies, according to a new report by JLL titled 2018 Top Themes Driving Middle East Outbound Real Estate Flows in 2018

May 14, 2018
May 14, 2018
May 14, 2018

Middle East investment flows into global commercial real estate decreased from US$12.2 billion in 2016 to US$9.1 billion in 2017 showing a decline of 25%, as a result of the sharp dip in oil prices and intensified competition from other buyers in global gateway cities which for long have been a preferred target location. However, Middle Eastern buyers are expected to regain their competitiveness and dive deeper into established real estate markets of continental Europe, contributing to the recovery of outbound investment volumes in the future.

Investors from the region are looking beyond mainstream asset classes and are following the global trend of investing into alternative assets such as student housing, hospitals and senior housing. Historically, offices and hotels have represented their 'comfort zone' and accounted for 85% of commercial real estate investment flows from the region each year. "This change in mentality suggests that in their permanent quest for higher yield, investors are now more willing to move up the risk curve," said Fadi Moussalli, Head of International Capital Group, MENA at JLL.

As the conventional asset classes become more expensive, investors are becoming more creative not only with diversifying their portfolio by sector but also by geography. The report highlights that Middle Eastern buyers are looking towards more 'exotic' destinations such as South America and Eastern Europe. Within more familiar markets, activity of Middle Eastern buyers is spreading across from gateway markets to second-tier locations.

The report also looks at updates from specific investor types and analyses how will they respond to changing macroeconomic conditions.  With recent recovery of oil prices, Sovereign Wealth Funds are taking a more active management approach to their real estate stock. Their activity is expected to pick up although for country-specific reasons some will be more active than others.

Syndicating platforms emerge as a major and ever increasing source of outbound capital from the region. However, it is expected that there will be increased competition to create winners and losers in this race. Private investors are increasingly concerned with geopolitical situations and continue to export their capital overseas. Introduction of REITs in Saudi Arabia will lead to greater private participation in financing of real estate and increased overseas flows.

"Lastly, 2017 brought about unpredicted regional events which will continue to affect investor decisions in the future. In the context of volatile geopolitical situation in the Middle East, the 'Black swan' factor can never be ruled out, " he continued. .

This report JLL highlights the themes and trends of Middle Eastern investors, investing into real estate sectors overseas.