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29 March 2024

Dubai, London top realty hotspots for rich in UAE

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By Staff

Despite global economic volatility over the past year, which contributed to multiple downward revisions for growth forecasts, investment appetite among UAE High Net Worth Individuals (HNWI) does not appear to be dented, with 61 per cent confirming that they would most likely invest in their top target city this year, according to Cluttons.

The 2016 Middle East Private Capital Survey, in partnership with YouGov, shows that London, which has historically been an investment magnet for Middle East HNWI, has emerged alongside New York as the top investment location outside the Middle East for UAE HNWI, while Dubai has been identified as the preferred location within the Middle East.

Steven Morgan, Chief Executive of Cluttons Middle East, said: “The strength of the US dollar, to which the UAE retains a fixed peg, has certainly contributed to the strong appetite for global property investments, particularly in the face of mute local and international economic conditions, which have been traditional triggers for capital flight to perceived investment safe havens.

“With investment safety at front of mind for HNWI, London is just ahead of New York as the most preferred city for investment. However, our survey shows that New York appears more frequently in investors’ top three preferred cities for investment in 2016”, he added.

According to the report, London has been an investment destination for Gulf buyers for many years, a trend which is expected to continue, with growth of average residential property prices expected to reach the 2.5 to 3 per cent mark for prime Central London as a whole in 2016.

Cluttons data also shows that while residential property remains the most attractive investment asset for UAE HNWIs, interest in commercial property continues to remain strong with 22 per cent of UAE HNWIs surveyed indicating a preference for offices as an investment class.

Faisal Durrani, Head of Research at Cluttons said: “Despite tightening yields in London’s office sector, which currently stand at 4.8 per cent in Central London, when compared to office yields of circa 7 per cent to 10 per cent in Dubai, contract strengths play a significant role in driving inward investment into London’s office market.”

“Whilst lease terms in Dubai are typically between one to five years, lease lengths for London offices generally start at five years and often continue up to as long as 15 years, offering the security of a longer tenure. Moreover, the availability of investment grade stock is far more abundant in London than it is in Dubai. However, this appears to be changing slowly, with the sale of the Standard Chartered building in Downtown Dubai as a recent example”, Durrani added.

According to Cluttons, UAE HNWI respondents also reported that locations within the Middle East are among their top three investment targets over the next 12 months, with Dubai and Abu Dhabi being the most popular locations in the region for investment.  
“30 per cent of UAE HNWI investors name Dubai in their top three most preferred cities, followed by Abu Dhabi at 23 per cent. Dubai is both the leading target investment location as the ‘most preferred’ city as well as the most commonly mentioned city in investors’ top three preferred locations in the Middle East”, Durrani said.

Carried out in partnership with YouGov, Cluttons Middle East Private Capital Survey investigates investment trends and behaviours of the GCC high net worth individuals who either have made or intend to make an investment of $1 million or more in international property.

No drop in investor activity  

Real estate investors across the Europe, Middle East and Africa (EMEA) region intend to be very active in 2016 CBRE said.

In its 2016 EMEA Investor Intentions Survey, it said almost half (48 per cent) of all surveyed expect their purchasing activity to be higher than last year, compared with just 15 per cent who expect to be less active buyers. Nearly 43 per cent also expect their selling activity to increase, indicating a buoyant and liquid real estate investment market for the region in 2016.

Despite this commitment to real estate investment, one notable change has been a decline in investors’ appetite for risk.  After three years of diminishing popularity, prime or core assets are back on the agenda.

The proportion of investors who see prime or core assets as the most attractive part of the market has jumped from 29 per cent last year to 41 per cent in 2016.  This is partly explained by investors’ concerns over economic issues.  

When asked the question “What poses the greatest threat to property markets in 2016”, global economic weakness was seen as the greatest threat (31 per cent), with domestic economic problems (14 per cent) a distant second.

Diverging investor views were prevalent in the responses given for the most attractive country for real estate investment.

Germany was the most frequent choice as investors’ preferred destination, with 17 per cent of all responses. The UK was in close second place with 15.1 per cent, followed by Spain (10.2 per cent), Netherlands (9.9 per cent), France (9.2 per cent) and Poland (9.2 per cent).  

More importantly however, is the fact that this was by far the closest result of any of CBRE’s seven surveys, with many more markets coming into the mix this year.

When it comes to investment in to the Middle East, Nick Maclean, Managing Director, CBRE Middle East, said there is a substantial mismatch between supply and demand.

“Despite the significant development of commercial and residential property over recent decades, the number of commercial transactions involving foreign investors does not adequately reflect the interest in real estate in the GCC and if the relative illiquidity could be solved here, the UAE in particular would see substantial inbound capital flows”

There was also a big uplift in interest in Central and Eastern Europe (CEE).  When taken as a group, CEE markets saw their proportion of preference rise from 6 per cent in 2015 to 23 per cent this year.  This can partly be explained by investors’ continued “search for yield”.

In H2 2015 prime yields in continental Western Europe fell very sharply and this has resulted in the yield gap between CEE and Western Europe increase markedly, raising CEE’s attractiveness to real estate investors.

At a city level, London retained its preferred status, with 15.1 per cent of all investors favouring the city, but the gap between London and other cities is closing. Madrid came second with 12.2 per cent, closely followed by Paris (11.6 per cent), Berlin (10.8 per cent), Amsterdam (7.3 per cent), Warsaw (7.0 per cent), Milan (4.7 per cent), Budapest (2.9 per cent), Prague (2.7 per cent) and Munich (2.4 per cent).

Across the more traditional sectors, offices remained the favourite asset type with 37 per cent of the responses. However, it was residential assets that saw the biggest increase in investor interest, growing from 5 per cent of preferences in 2015 to 12 per cent in 2016.

Retail also fared well, and the recovery of consumer confidence and consumer spending has resulted in the proportion of respondents choosing retail increasing from 22 per cent in 2015 to 27 per cent in 2016.  

The search for yield, as mentioned with regard to CEE, was also apparent in respondents’ answers to the “alternative” sector.  Around 56 per cent of all respondents were already invested in one or more alternative sectors, and 57 per cent were actively looking in one or more of these sectors.

Real estate debt is the segment that currently has the most market penetration with over 30 per cent of investors already having some exposure and 22 per cent actively looking for further investment.

Student Housing was the segment which attracted the most new interest. Around 20 per cent of respondents already have investments in this area with most of these seeking further exposure.  However, there are a further 13 per cent of respondents who are looking to invest in student housing for the first time, the report said.