GCC property buyers look for assets overseas

Property investors in the GCC spent five-and-a-half times more on commercial real estate overseas than overseas investors spent in the region.

According to the property broker CBRE, US$2.3 billion was spent on GCC commercial real estate last year, most of which went into assets in Dubai, compared with $13bn spent by GCC investors on overseas assets.

CBRE researchers said that overseas investors were struggling to buy office buildings and hotels in the Dubai because assets are rarely traded, with developers and wealthy families holding on to prime income-producing assets.

Property deals that have been concluded have tended to be for buildings such as hospitals and schools, such as the New York-based fund manager PineBridge Investments’s sale and leaseback deal with Gems Education to buy a school in Dubai.

Although about half of all office space in Dubai stands empty, office blocks owned by a single landlord and built to institutional standards are in high demand.

Prime office yields in Dubai stand at about 7 per cent, while on equivalent properties in London they stand at 5 per cent and in New York 4 per cent, CBRE reported.

“The majority of investors, particularly from Asia Pacific, have been left thwarted and frustrated about the lack of available product in this market place,” said Nick McLean, the managing director of CBRE’s Middle East office.

Of the $13bn invested in property overseas by GCC buyers last year, around 60 per cent was spent by sovereign wealth funds.

GCC funds including the Abu Dhabi Investment Authority, the Qatar Investment Authority and the Saudi Arabian Monetary Agency accounted for about 33 per cent of the total capital deployed into real estate around the world, CBRE said.

Deals included St Martins, the property division of the Kuwait government, purchasing the 13-acre More London office and restaurant complex near London Bridge for $2.7bn.

Mr McLean called on the UAE government to release assets for sale to private investors to boost the country’s institutional investment market for real estate.

Jonathan Silver, a partner at the law firm Clyde & Co, said that many institutional investors were put off investing in the UAE because of a lack of regulation in the sector.

“As the need to attract overseas capital increases in the coming years, we expect to see the government pass more laws safeguarding investors’ interests,” he said.

lbarnard@thenational.ae

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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.”

Key facilities

Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
Premier League-standard football pitch
400m Olympic running track
NBA-spec basketball court with auditorium
600-seat auditorium
Spaces for historical and cultural exploration
An elevated football field that doubles as a helipad
Specialist robotics and science laboratories
AR and VR-enabled learning centres
Disruption Lab and Research Centre for developing entrepreneurial skills

Labour dispute

The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.

- Abdullah Ishnaneh, Partner, BSA Law