Middle East CRE Investment Widens Amid Oil Price Swings
JEDDAH — Middle East investment into commercial real estate (CRE) rises in line with oil prices, as more surplus funds become available, according to Savills plc, a global real estate services provider listed on the London Stock Exchange.
However, the firm has also found that likewise investment rises when prices are falling with a potential £7-10 billion allocated in the European markets.
The firm suggests that while a sharp drop in oil prices may lead to a short term drop in the Middle Eastern oil producing countries’ real estate investment activity, it is also likely that the knock-on effect on GDP will be an important reminder of the need to diversify a country’s revenue sources away from non renewal energy.
This, Savills said, could lead to an increase in overseas investment into real estate in the medium to long term. It could also mean a greater allocation to emerging markets in pursuit of greater return on investment, which we have seen in some cases with increased focus on Asian markets.
Mat Oakley, director of Savills research, said: “Middle Eastern investors accounted for 11 percent of the Central London market last year at circa £2.4 billion, and we would suggest that their spend will increase over the next year in line with previous falls in oil prices. Our research suggests an increasing allocation towards real estate among the sovereign wealth funds suggesting that real estate is considered to create greater returns than fixed income or be less volatile than the returns from equities.”
Hassan Farran, director of Savills in the Middle East, forecast that “sustained period of low oil prices will spell continued high demand for core real-estate in global gateway cities as part of long term strategic allocation into defensive assets, less exposed to the volatilities of other asset classes. The picture is more nuanced for the private investors. Oil price variations will affect the individual investor in various ways and their overseas investment appetite is likely to be influenced by other, country specific, factors.” — SG