Middle East investors eyeing up European options
Appetite for European real estate is beginning to rebound as Chinese investment slows
Middle East investors are seeking property investment opportunities across Europe, as Chinese investment into the continent slows, according to international real estate advisor Savills.
After a 2017 dip in global real estate investment from the Middle East due to lower oil prices and less favourable exchange rates, the appetite for European real estate is beginning to rebound.
Most recently, Saudi Arabian asset management firm SEDCO Capital acquired three properties worth $179.9m across France and the UK. Meanwhile, further Saudi investment has come from Sidra Capital, which has invested in 17 UK real estate projects over the past six years, including the $121.4m purchase of the prominent office complex Weston House in London’s High Holborn area.
Since June 2017, Bahrain’s Investcorp has acquired UK and European real estate assets totalling over $322 million, including the latest acquisition of five industrial units in Scotland worth $14.8 million and an office campus in Frankfurt valued at $100 million.
UAE capital is also flowing into the UK. In June, Abu Dhabi Islamic Bank structured a Sharia-compliant transaction on behalf of an Abu Dhabi-based private banking client to finance the $32.2 million acquisition of Lateral House in the English city of Leeds, while earlier this year Gulf Islamic Investments bought commercial office space in Aberdeen totalling $60 million.
Meanwhile, Chinese government restrictions on outbound investment has decreased the Asian inflow into European real estate. However, it is still an important destination for Chinese investors, with Real Capital Analytics highlighting that during H1 2018, three of the top 10 destinations for outbound Chinese investment were in Europe (UK, France and Germany).
US investors remain by far the most active cross-border player on the European property market, although investments are slowly decreasing. However, investment in European real estate from Korea and Singapore continues to flourish. In the latest investor report, Savills has highlighted the most attractive propositions in European real estate.
Offices, office developments and office refurbishments continue to offer opportunities for core and value-add real estate investors in Europe, according to international real estate advisor Savills. The sector is boosted by business expansion, employment growth and a significant need for modern premises. In certain countries, other asset classes including hospitality, the private rented sector (PRS), student housing and care homes could attract investors. The key themes as the cycle prolongs are rental growth, opportunities from developing or re-positioning properties and locations as well as long-term income both from traditional property types and alternatives.
Lydia Brissy, Director, European Research, Savills, said: “We are seeing that prime CBD offices will continue to offer opportunities for core investors in Amsterdam, Athens, Brussels, Copenhagen, Lisbon, London, Luxembourg, Milan, Oslo, Paris, Prague and the top German, Polish, Swedish and Spanish cities. Those looking for value-add opportunities could consider PRS and retail in regional cities in Austria and Dublin as an interesting investment opportunity as well as office refurbishments in the suburbs of Brussels, Paris and Prague.
“Other value-add opportunities exist in the care home sector in Denmark, logistics and retail (parks) in Poland and Sweden, prime high street refurbishment in Milan and Oslo, hospitality in Greece and student housing in Amsterdam. Another interesting value-add opportunity we have identified is the (re)development in cities with strong urbanisation, hubs of innovation and brainpower such as Lisbon, London, Paris, Amsterdam, Berlin, Bucharest, Frankfurt, Barcelona, Copenhagen, Stockholm and Dublin.”
According to Savills, real estate remains an assets class of choice in Europe and the amount of capital invested in the real estate market remains significant. The spread between the average 10 year bond yield and the prime office yield is at 248bps (Q2 18) compared to 180bps in 2008 and a 10-year average of 237bps. In strong markets, the number of underbidders for large deals exceeding €500m generally ranges between three and five. For smaller investments (<€100m), it generally ranges between 10 and 15. Some European markets also recently witnessed an increasing number of off-market deals, revealing sellers’ confidence in finding the right offer.
Marcus Lemli, head of Savills European investment, said: “Europe remains an attractive investment proposition for investors, supported by an expanding economy, low unemployment and healthy occupier demand for both traditional and alternative building uses.
“Based on our Q1-Q3 2018 preliminary figures we expect Ireland, Poland, Portugal and Greece to stand out showing strong annual increases of approximately 80%. Investors into European real estate continue to focus on the core markets which still account for 67% of the total investment volume in Europe in line with previous years and are increasingly looking for opportunities in the other markets. While we expect offices to remain the asset class of choice despite compressing yields, investors who are happy to look at countries on a city and asset level, are still able to find 5%+ yields in Europe.”