Middle Eastern investors have deployed £1,431 million in UK commercial real estate in 2016 to date across 25 transactions. £909.6 million of this has been transacted in 11 deals which have taken place since the EU referendum, with up to 30 per cent (£271.8 million) of all Middle Eastern investor activity since June’s vote occuring outside Central London.
While total investment volumes in the UK are down on the record years of 2015 (£38,090 million) and 2014 (£28,030 million), we are seeing a continued appetite particularly for long-dated income streams secured by strong covenants. London retains its reputation as a global gateway city and the wider UK as an attractive investment destination. Middle Eastern investors with long-term aspirations continue to value those factors that have not changed in the UK since the vote to leave the EU. Factors such as the legal system, landlord friendly regulations, a standardised market, a time zone that differs from that of the Middle East by a maximum of four hours and cultural attractions.
The weak pound is also appealing to investors whose currency is pegged to the US dollar. This has contributed to the ongoing resilience of the UK’s commercial real estate market in the last six months and the decision by some Middle Eastern investors, who have previously been sitting on the sidelines, that now is the time to buy.
As the strength of covenant becomes more important than ever for Middle Eastern investors, we are seeing activity from them in the UK regional markets when other overseas investors, such as those from Asia, are focusing on London. Our research shows Middle Eastern investors now have an 8 per cent market share of the UK’s commercial property market and a 12 per cent share of investment in Central London.
Key deals completed recently include Palmer Capital and SEDCO Capital purchasing Waterside House in Bracknell for £35.2 million; Rasmala acquiring Abbvie House on Vanwall Business Park, Berkshire, for £24.5 million; and Kuwait’s Global Investment House (Global) purchasing the NHS Scottish and UK/European head quarters offices at the Gyle Business Park in Edinburgh and 3M in Bracknell for a total of £200 million.
As the push factors for international diversification among Middle Eastern investors build, we expect confidence in the UK’s commercial property market and inward investment to continue. While there is an element of caution resulting from political activity in the UK, and also the US, by and large both countries offer Middle Eastern investors unique market breadth and attractive level returns.
Read more: A question of risk and return by Mark Ridley