Middle East investors vastly increased the amount of money they investment in US CRE during the last year-and-a-half compared to the previous two years, investing a larger percentage in New York than any other major city outside the Persian Gulf region for the first time in nearly a decade.
The total value of Middle East investments in US CRE totaled $9.8 billion in 2015, compared to $3.4 billion in 2014 and $2.9 billion in 2013, while that number had already topped $3.8 billion the first half of 2016, according to numbers CBRE provided Real Estate Capital.
Michael Haddock, senior director, global research at CBRE, said that the biggest drivers of Middle East dollars into US commercial real estate “by far” have been sovereign wealth funds (SWFs).
“SWFs from the Middle East have increased the share of their portfolios allocated to alternative investments, and the easiest choice in that market is real estate,” said Haddock. “When you start making real estate a significant part of your portfolio, you need to start thinking about geographic diversification.”
The sovereign wealth funds have historically been “strongly biased to the European market”, said Haddock. As a result, the US used to be under-represented by Middle East cross-regional investment. However, with globally low interest rates and economic growth in the US increasing, the US real estate market has become relatively more attractive.
This trend is consistent with other rating agencies’ findings that Middle Eastern investment in global real estate—increasingly bound for the US— has not been stymied by the recent drop in global prices of oil, which plunged to $33.65 per barrel of crude this January, the second-lowest level since 1946, after reaching a fifty-year high at $105.54 in July 2014.
New York City had the highest amount of dollars from the region over the last 18-month period, raking in $6.5 billion in Middle East cross-regional investments, surpassing London for the first time since 2007.
Sovereign wealth funds from Qatar and the United Arab Emirates accounted for the majority of the region’s investment in US real estate. Last October, Qatar Investment Authority purchased a 44 percent share in Manhattan West, an $8.6 billion mixed-use project on New York’s far west side, while last December the Abu Dhabi Investment Authority acquired a US industrial portfolio jointly with Canada Pension Plan Investment Board that totaled well over $5 billion.