REITs on the rise throughout the Middle East
Combined market capitalization of REITs in the UAE was $800 million as of early 2018
Real Estate Investment Trusts (REITs) are gaining momentum across the Middle East, but the region still lags some way behind other parts of the world.
According to the latest report from PwC: ‘The emergence of real estate investment trusts in the Middle East’, market capitalization of REITs compared to listed real estate companies in the UAE is around 3% whereas in more mature markets such as US and UK at least 80% of the listed market cap for real estate is attributable to REITs.
The report revealed combined market capitalization of REITs in the UAE was $800 million as of early 2018. In comparison, Singapore had greater than $60 billion in aggregate REIT capitalization over the same time period.
It read: “In Singapore the REITs have typically specialized in an asset class and then expanded geographically via organic and inorganic growth and that might be the way forward for REITs in the region as they have a small base of investable assets in their home markets.”
The PwC study also predicts a shift in business models with REIT investors moving away from being ‘generalist’ aggregators of real estate assets to becoming ‘specialists’ within a particular real estate asset class.
The study highlighted that to enable the sector for institutional investment the focus should shift to sector specialization in line with global best practices.
Dr. Martin Berlin, Middle East Partner and Global Deals Real Estate Leader at PwC said: “On average REITs tend to provide a healthy dividend yield; however sufficient diligence needs to be done before allocating capital to REITs to ensure that an investment yields the right returns.
“Although still underpenetrated in the Middle East, REITs will benefit the region in terms of the transparency they will bring to sector. However, this will be a gradual process and will require a significant investment from these REITs to incorporate best practices relating to their underwriting, deal diligence, policies and procedures, systems as well as governance structures.
In addition to the increasing attractiveness of REITs, PwC has forecast other trends emerging in real estate investment regionally: Sale & Leasebacks - which it expects to rise given the current market conditions of limited liquidity and financing options; Build-to-suit products - as developers increasingly customize their assets to cater to tenants’ needs; And finally, co-working - a concept that has witnessed phenomenal global growth. While still underpenetrated here in the region, co-working spaces are becoming increasingly popular, with the UAE positioned to lead in this space.