Residential and industrial property will be the strongest real estate investment asset classes globally in 2022, according to research from consultancy Savills.
Global real estate investment volumes rose 38 per cent to $1.3 trillion in the 12 months to November 2021, compared with the corresponding period in 2020, Savills said, as an increasing number of funds looked to invest in the asset class.
The number of funds focusing on real estate also hit a record, with 1,250 such funds committing $365 billion last year, compared with 1,000 funds in 2020, according to investment data company Preqin.
As population growth picks up again, especially in the UAE and Saudi Arabia, residential development will continue to remain a key focus area
Swapnil Pillai,
associate director of Middle East research at Savills
“While industrial emerged as a strong but natural winner as a result of a flourishing e-commerce sector, prime offices found favour once again across the Middle East markets as employees returned to the workplace,” Swapnil Pillai, associate director of Middle East research at Savills, said.
“As population growth picks up again, especially in the UAE and Saudi Arabia, residential development will continue to remain a key focus area.”
UAE property prices are expected to continue rising in 2022, driven by supportive economic reforms and an accelerated vaccination programme that has helped to hasten a rebound from the coronavirus-induced slowdown last year.
Environmental, social and governance (ESG) standards will influence investor property investment and purchasing decisions in the GCC over the next 10 years, according to an October report by Mashreq, the Dubai lender controlled by Al Ghurair family.
Residential – including multi-family, student and senior housing – was the largest sector for investment globally in 2021, overtaking offices for the first time, Savills said.
“Investors are increasingly attracted to residential’s secure, income-generating qualities, robust demand and resilience against technological disintermediation, but while strong activity will continue in 2022, a dearth of standing stock means that development will be the entry point for many,” Savills said.
Prime residential properties in Dubai will continue to attract investor demand, while other segments of the residential market play catch up, the consultancy said.
Riyadh and Cairo will be other residential markets that attract investors, with opportunity for the development of branded residences in Egypt, the research cited.
While global investment in the offices sector remained below pre-pandemic levels, volumes in the industrial sector rose 54 per cent, Savills said.
Prime offices occupied by government organisations and multinational corporations will remain core assets in big cities across the UAE, Saudi Arabia, Bahrain, Oman and Egypt, the research revealed.
This will be followed by multi-let offices in good locations across Cairo and Riyadh.
Commercial property demand is being driven by sectors including banking and financial services, technology and FinTech, according to the consultancy.
“While the stats show offices were less loved than residential last year, despite the multitude of headlines about e-commerce growth, they still made up a greater proportion of the global market than industrial,” said Paul Tostevin, a director in Savills’ world research department.
Meanwhile, e-commerce continues to fuel demand for quality warehouses but the Middle East is still one of the most underpenetrated markets for online shopping, according to Savills.
Super-regional malls across Dubai, Cairo and Riyadh will become more popular with investors in 2022 while community retail establishments across mixed-use developments in Dubai, Abu Dhabi, Riyadh and Cairo will also be in focus, the researchers found.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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