Commercial properties whet region's appetite

In terms of capital transactions across the world's commercial real estate markets, 2011 was a significantly more active year than 2010, with the total recorded value of some $410 billion (Dh1.5 trillion) being 28 per cent higher. The proportion of cross-border transactions also rose, to 31 per cent.

At the heart of this change was an increased focus on core, mature markets at the expense of potential opportunities in developing countries. Middle Eastern investors were increasingly active players in 2011, with one notable trend being a changed mind-set, from one of buy and hold to a more active trading mentality.

This shift is reflected in the Jones Lang LaSalle data on cross-border investment in commercial real estate, which shows Middle Eastern investors have been strong net purchasers in overseas markets in recent years.

They were able to take advantage of continued demand for real estate in many global markets to dispose of assets they had acquired in recent years and repatriate capital to their local economies.

Significant increase

While remaining net buyers with $4.5 billion worth of cross-border purchases, there was however a significant increase in their sales activity in 2011, as both sovereign wealth funds (SWFs) and private investment offices took the opportunity of selling overseas real estate assets. This reflects the increased importance of private investment houses.

The other driving force behind the increased sales activity is the decision of some of the region's largest SWFs to more actively manage their portfolios as opposed to their previous ‘buy and hold' attitude.

On the buy side, there remained a strong appetite, with total cross border purchasers by Middle Eastern investors increasing 12 per cent from 2010 levels to more than $4.5 billion in 2011.

Investors from the Middle East still preferred the mature markets of Europe and the Americas with very little investment into Asia-Pacific. Within these more mature markets there has, however, been a broadening interest, with purchases in Canada and Argentina (as well as the United States) and in 10 countries across Europe.

The UK in general, and London in particular, remained the number one destination for Middle Eastern investment in 2011, but investment in this market actually fell by 8 per cent to $2.4 billion in 2011, as investments were secured in other European markets.

Favourite asset class

The office sector continues to be the favourite asset class and attracted 42 per cent of cross-border investments by Arab investors in 2011. As in 2010, Qatar was the main exporter of capital from the Middle East in 2011. Other active investors included the Kuwaiti and Abu Dhabi SWFs along with Saudi and Lebanese private offices (including Continental Property Investments, Corporate Finance House and Tawfiq Abu Khater).

The consistent weight of capital for commercial property over the last two years demonstrates that, despite the financial crisis, it remains a core asset class for many investors. For 2012 we expect transaction volumes to keep pace with the level of activity recorded in 2011, and we believe that Middle East investors will continue to play an active role.

The writer is the CEO of Jones Lang LaSalle MENA.