Private equity real estate funds and private wealth in the Middle East ramped up their overseas real estate investment in 2014, but the overall investment volume declined as sovereign wealth funds (SWFs) actually scaled back, a report by CBRE has determined.
As much as $14 billion was invested by Middle Eastern institutional investors in real estate markets outside their home turf, making the region the third largest source of capital last year after North America and Asia, estimated the report titled “Middle East In and Out 2015”. Yet, this was a fall in the overall outbound investment volume as compared to 2013 when $16.1 billion was invested.
Investments by SWFs – the biggest component of Middle Eastern institutional capital – fell to $5.8 billion, a sharp drop from the $8.4 billion invested in 2013. However, high net worth individuals invested $2.5 billion in outbound real estate deals last year as compared to $1.5 billion in 2013, marking the highest percentage increase in outbound investments among all institutional pools of capital. Private equity funds came next, investing $1.5 billion in 2014, up from the $1.3 billion invested in 2013.
The report has attributed a drop in oil prices as the biggest factor leading to this “cautious behavior” by the SWFs, particularly with regards to direct investments, and has predicted a similar trend to continue in 2015 as well.
“In contrast to SWFs, lower oil prices may have triggered private capital to increase international allocations and speed up deployment faster than would have been the case otherwise,” said Iryna Pylypchuk, director, global capital markets research at CBRE. “Our research clearly shows a greater allocation of investment to real estate and desire to diversify away from the home region.”
The report further noted a change in the regional contribution to real estate investments. From investing close to nothing in 2013, Saudi Arabia invested $2.3 billion in outbound investments last year, coming second to Qatar, which represented the largest source of Middle Eastern capital with investments totaling $4.9 billion.
Pylypchuk further added that the greater willingness to invest on the part of private wealth and equity funds has had an impact on the European property market, where the two groups invested $5.5 billion last year, representing a 49 percent annual increase.
London has remained the top investment destination for the region’s investors followed by Paris. However, in another shift in investment strategies, investors are now also beginning to diversify into second-tier European markets such as Amsterdam, Frankfurt and Madrid.