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.

Follow The National's Business section on Twitter