Middle East buyers to invest more on overseas properties as oil crosses $70: JLL

Overseas real estate transaction volumes by Middle Eastern buyers are set to pick up, as oil prices rise above $70 per barrel for the first time since 2014, according to JLL.

In a recent report titled, "Top Themes Driving Middle East Outbound Real Estate Flows in 2018", the consultancy said Middle East investment flows into global commercial real estate decreased by 25 percent to $9.1 billion in 2017 from $12.2 billion in 2016, due to sharp dip in oil prices and intensified competition from other buyers in global gateway cities.

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, it added.

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 percent of commercial real estate investment flows from the region each year, the report said.

“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, JLL.

As the conventional asset classes become more expensive, investors are becoming more creative by not only diversifying their portfolio by sector but also by geography.

JLL said Middle Eastern buyers are looking towards more "exotic" destinations such as South America and Eastern Europe.

Within more familiar markets, the activity of Middle Eastern buyers is spreading across from gateway markets to second-tier locations.

Meanwhile, JLL said that with the recent recovery of oil prices, sovereign wealth funds are taking a more active management approach to their real estate stock and their activity is expected to pick up though 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, JLL said.

“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,” Moussalli added.