Gulf Arab and Middle Eastern investment in US real estate will continue to be steady in the medium and long-term after bouncing back from declines caused by the Covid-19 pandemic, according to experts.
According to statistics compiled by commercial real estate and investment management firm JLL, cross-border inbound investment stemming from Middle Eastern investors averaged $2.2 billion between 2017 and 2019.
Middle East investments in US real estate soar during 2019
Knight Frank says investment into the US from the Middle East has more than doubled in the past year, accounting for 15.4% of all global deals
Additionally, the statistics indicate that the proportion of Middle Eastern activity in US buyer pools has increased gradually over the course of the property cycle, comprising 5.6 percent of acquisition volume from 2010 to 2014, followed by an increased 6.4 percent from 2015 to 2019.
Total Arab investment, however, remains small when compared to other capital sources, comprising a total of 4.2 percent of the acquisition volume since 2017. European and Asian capital, by comparison, makes up just under 25 percent of the buyer pool, while Canadian investors make up nearly half.
The data from JLL Research, however, shows that compared to their international peers, Gulf investors tend to focus on larger, higher-profile single asset acquisitions. The average single asset transaction for Arabian Gulf investors, for example, was $80 million, compared to $49 million from other global capital sources.
Compared to other investors – at least in commercial real estate – Gulf investors show more interest in office and hotel properties, with Gulf investors allocating 44 percent of invested capital to the office sector, and 21 percent to hotels. By comparison, the overall investment community allocated only 27 percent of capital to offices and 7 percent to hotel properties.
The investment landscape
For decades, Gulf sovereign wealth funds such as the Abu Dhabi Investment Authority, Kuwait Investment Authority and Qatar Investment Authority have been among the most significant investors in US real estate.
“Gulf investment in US property continues to be a priority for the larger family offices and sovereign wealth funds whose core holdings in international real estate are largely in the United States,” said Anthony Ritossa (pictured below), the founder and chairman of Ritossa Family Office.
In the US, Ritossa added, wealthy Middle Eastern families and private investors continue to favour both commercial and residential real estate opportunities – a trend that he expects to continue into 2021.
Popular destinations for investment, he said, include Florida – particularly Miami (pictured below), Fort Lauderdale, Palm Beach and Orlando – as well as Texas (pictured), Washington DC, and Chicago.
“[Gulf] Investors view US real estate as more stable than other parts of the world, and appreciate the fact that Gulf currencies are pegged to US dollar,” Ritossa added. “We see a number of Middle Eastern families seeking real estate opportunities all around the US, including the mid-Atlantic. Although they tend to favor larger markets with which they are familiar, they’re investing in the best opportunities.”
In an interview with Arabian Business, Riaz Cassum, JLL senior managing director, capital markets global head of international capital coverage, said that “there has been an increase in appetite from high-net-worth investors looking to diversify out of the Gulf region, and seeking additional yield compared to what has been available in the European market.
The increasing investor appetite from private investors comes both directly from the investors or via syndicators and asset managements like Arcapita, Sidra Capital, Sedco and others who aggregate this capital and act as advisors to the private investors, Cassum added.
“Additionally, the newest significant entrant in the direct real estate investment space is the [Saudi] Public Investment Fund (PIF),” he said. The PIF… will increasingly be making both direct and indirect [funds] investments into real estate both in the US and globally.”
Impact and forecast
The ongoing Covid-19 pandemic, however, has had a significant impact on Gulf investment in the US this year.
“Travel restrictions have created significant logistical challenges for investors hoping to evaluate US real estate during the current market environment, limiting foreign capital’s ability to underwrite transactions, leading to no activity of significant scale among Middle Eastern investors thus far in 2020,” Cassum said.
In 2020, the JLL Research statistics show that the acquisition volume of Arabian Gulf investors fell 78 percent year-on-year between 2019 and 2020, compared to a 43 percent among other cross-border capital sources.
“During the pandemic, investors are spending time at home reflecting and re-evaluating their priorities and portfolio composition,” Ritossa said. “They view real estate and the US economy as a stable and promising opportunity, and are increasing allocations accordingly.”
Looking forward, Cassum said that he expected Gulf investors to continue to search for investment in the US as a result of a need for diversification and a search for higher yields.
“With negative interest rates in Europe and correspondingly low cap rats, the US market looks relatively attractive,” he said. “With declining interest rates in the US and increasing leveraged returns, capital from the Gulf is looking for well leased properties with long-term leases.”
“There is increasing demand for industrial and logistics, data centres and multi-family properties with very little interest in retail and hospitality given the disruptions due to the pandemic,” he added.
Five Things We Learned:
- An average of $2.2 billion was invested by Middle Eastern investors between 2017 and 2019
- Gulf investors tend to focus on larger, higher-profile single assets than their foreign counterparts
- Investment from the Arabian Gulf declined as a result of travel restrictions related to the Covid-19 pandemic
- Despite the decline, US investment continues to be a priority for sovereign wealth funds, family offices and private investors
- Investment is expected to rise again as Gulf investors seek to diversify in markets that look attractive when compared to Europe and others