The Real Deal New York

Middle Eastern investors to spend $15B annually on global RE

Low oil prices driving investments abroad

August 03, 2015 01:51PM
By Ariel Stulberg

From left: Sheikh Khalifa bin Zayed Al Nahyan, ruler of Abu Dhabi, 5 Madison Avenue and Qatari emir Sheikh Tamim bin Hamad Al Thani

Middle Eastern investors are projected to spend an average of $15 billion annually on the international property market over the next few years, according to a new report.

With low oil prices pushing investors to diversify, Middle Eastern sovereign wealth funds, and, increasingly, private investors, are likely to take even more of their cash abroad, according to the report, prepared by CBRE. The $15 billion estimate represents a potential increase of a billion dollars over the 2014 total of $14 billion.

Qatari investors and funds sent the most capital abroad last year, a total of $4.9 billion. Saudi Arabia was the second largest source, with $2.3 billion invested globally, an increase from the kingdom’s near-zero outbound investment in 2013. New York City was a major beneficiary of these funds last year, with about $1.5 billion of investment flowing in, trailing only London and Paris.

“As the big sovereigns continue to seek safe havens and long-term stable growth potential, the flow of capital from the Middle East will become even stronger,”  said Spencer Levy, Americas Head of Research at CBRE. “We expect a greater amount of this capital to start looking beyond the gateway markets to achieve its objectives.”

Middle Eastern investors spent $5 billion in the first quarter of 2015, with the money split nearly evenly between Europe and the Americas. New York, Washington, D.C., Los Angeles, and Atlanta were the top U.S. destinations.

These investors have historically focused on office buildings and trophy hotels, but competition for those assets from Chinese investors are forcing them to diversify.

While sovereign wealth funds like the Abu Dhabi Investment Authority continue to play an important role — ADIA recently purchased the New York Edition Hotel at 5 Madison Avenue for $337 million — CBRE expects oil prices to negatively impact their total spending. The firm projects such funds will spend between $7 billion and 9$ billion annually, as opposed to the $9 billion to $11 billion they would have spent if oil had remained above $100 per barrel.

Instead, private investors are increasingly stepping into the breach. CBRE forecasts that non-institutional capital from the Middle East will range from $6 billion to $7 billion per year, increasing from around $5 billion between 2010 and 2013.

As The Real Deal reported in June, an anonymous Qatari is currently in talks to spend up to $250 million on a penthouse at Vornado’s 220 Central Park South.