Whilst activity from Middle Eastern investors for UK and European real estate was relatively subdued in 2023 compared with their respective 5-year averages, we expect this to materially improve during the course of 2024.
Interest rates appear to have stabilised and we have seen a dramatic re-pricing progressively work its way through many European markets. As a result, investors based in the Gulf are becoming increasingly confident that markets may be bottoming out and that now is the time to capitalise upon the attractive pricing that is emerging as we start this next cycle.
Despite the comparatively high risk-adjusted income returns achievable in the region from non-real estate asset classes, Gulf investors remain keen on deploying into real estate, both for income and long term wealth preservation strategies. UK and European markets, along with the United States, remain top of the target destinations list. Furthermore, as some domestic real estate markets are perceived to be reaching later stages of the current cycle, this may encourage some investors to re-allocate additional resources offshore.
Who do we expect to be most active?
We anticipate opportunistic private capital from the region to be the most active in H1 2024, with some institutional investors continuing to take a more cautious approach in the early part of the year. Over the past 12 months, we have seen investors move away from typical debt driven, income yield focused strategies towards total return orientated investments. This will remain the case for the large part of 2024, but softening swap rates and widening property yields are once again allowing accretive debt financing to be secured against assets in selective markets. Furthermore, the dramatic move out in yield profile in certain sectors is enticing income driven investors back into the market on an unlevered basis with the option to refinance in the future if and when interest rates fall.
What are they looking for?
Looking across real estate sectors, aspirations from Middle Eastern investors continue to centre on the “beds, meds & sheds” thematic given its robust fundamentals. However, in reality, in light of stiff competition in these sectors, some Middle Eastern capital is encountering obstacles to entering the space due to return thresholds.
We did start to see some renewed investor appetite for office assets return towards the end of 2023 as a result of the material shift in entry pricing that the sector has experienced. We expect interest for offices to remain but with investors continuing to be highly selective and focusing on core, futureproofed product in European gateway markets, especially in instances where discernible re-pricing can be evidenced.
Where will we see most activity?
In terms of jurisdictions, in H1, we expect interest to focus initially on the UK and northern European markets, such as the Netherlands, given the significant pricing adjustments we have already seen. In the second half of the year, activity is likely to spread into other European markets as pricing adjustment works its way through the system and investor confidence returns.
Further information
Contact Edward Price or James Burke
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