Having been relegated to the bottom of the global investment market in 2009, investments from the Middle East have since picked up at a tremendous rate and are now growing at a faster pace than any other cross-regional investments.
World Property Journal reports that investors from the Middle East have remained active buyers despite a slowdown in global investment turnover in H1 2016. It notes that they have contributed to purchases that amount to more than US$9.8 billion (RM40.4 billion), representing 20 per cent of global cross-regional investment in the first half of the year.
Among the top global destination cities that are being targeted by buyers from the region are New York, Miami and Los Angeles in the United States, the United Kingdom capital of London and Singapore.
According to international property consultant CBRE Group, Middle East investors have been active in the global commercial real estate sector in a diverse range of markets.
However, strong activity in the US has resulted in a substantial uptick in transactional activity in the country.
CBRE notes that sharp increase in investment from the region has been primarily driven by sovereign wealth funds (SWFs), in particular those from Qatar and the United Arab Emirates. Capital flows are expected to remain high as SWFs increase the weighting of their portfolios and include a higher proportion of property.
New York City was the main focal point, generating some US$6.5 billion (RM26.8 billion) in property investments from Middle Eastern buyers over the last 18 months.
The combination of a favourable exchange rate and economic growth has made the US a leading target for Middle Eastern investors.
The Qatar Investment Authority (QIA) recently purchased a 9.9 per cent stake in the company that owns New York’s iconic Empire State Building for US$622 million (RM2.56 billion).
Other key markets attracting Middle Eastern investment include London (US$4.7 billion), Singapore (US$2.5 billion), Hong Kong (US$2.4 billion), Paris (US$2.2 billion) and Milan (US$1.3 billion).
Apart from London, these destinations are a shift from the traditional markets that Middle Eastern buyers had previously focused on.
Both North America and Asia were underrepresented in the Middle East investment portfolios in the past decade. Market analysts say that this suggests a move to a more balanced distribution of assets to achieve greater diversification. With substantial ground still to make up, this trend can be expected to continue.
“The destinations of investment flows from the Middle East are becoming more diverse and are no longer solely concentrated on London and New York City. Other US cities such as L.A., Washington, D.C., Atlanta and Miami, as well as Asian markets are moving up on their agenda,” said president of CBRE Capital Markets Chris Ludeman.
“Major Australian cities could be next. We expect investment flows from the Middle East to be substantial in the near future. Interest in the hotel sector will remain strong, while the industrial and logistics sectors will attract an increased share of capital,” he said.
Investors are also diversifying their investments in terms of asset type, said CBRE. From 2010 to 2014, Middle Eastern investment activity was focused on the office sector accounting for 53 per cent of the total.
However, by 2015, hotels and offices were tied, with purchases totalling US$8.2 billion (RM33.8 billion) in each sector.
While the first half of the year showed an expansion of target markets, in absolute terms, London has seen by far the most investment from the Middle East over the last seven years amounting to US$28.5 billion (RM117.6 billion).
Markets where Middle Eastern investors are underrepresented may also be targeted in the future including Tokyo in Japan, San Francisco in the US as well as Sydney, Melbourne and Brisbane in Australia.