Dubai: Whatever be the price of oil, Middle East investors aren’t likely to be put off buying trophy real estate assets abroad. And these are just as likely to be signature hotel properties as prime residential.
“Middle Eastern investors have dominated ... purchasing some of the world’s most iconic hotels,” according to an industry update issued by the consultancy CBRE.
Their recent transactions include the Claridge’s, The Connaught and The Berkeley in London’s Knightsbridge, and The InterContinental Paris Le Grand. “All are considered landmark assets and appeal to an opulent clientele with a penchant for luxury,” the report adds.
“While many predicted that the fall in global oil prices would dampen the heady tempo of investment flow from net exporting regions, Middle Eastern interest to acquire hotel assets has not abated.”
“This is partly due to the region’s substantial oil reserves allowing the respective nations to confidently continue with their allocations into overseas real estate — at least for the short term. Medium- to long-term investment into the aforementioned top-tier hotel assets generally rewards owners with a high level of stability in an increasingly volatile world of commodities and equities.”
Europe’s hospitality sector recorded a threefold increase in inward investments during the better part of 2015 compared with the 2007 tally. “While offices remain the asset class of choice among Asian and Middle Eastern investors, the preference for real estate diversity has become increasingly apparent through growing levels of activity in alternative sectors,” the report says.
“Inbound investment in hotels has exceeded all sectors with the exception of offices despite a marked increase in institutional interest in the industrial and residential sectors.”
The global hospitality industry has just had one of its best years in recent history, with hotels across the US doing exceptionally well on the occupancy side. Western European properties too have had a good run, and it could have been even better were it not for the concerns generated in the aftermath of the November Paris attacks.
The bigger hotel groups too have been active in the deal-making — but it’s the Middle East and Asian investors who have charged into the breach and snapping up anything that offers the potential for mid- to longer term investment.
“A low interest rate environment has ultimately acted as a catalyst to trigger real estate investment into Western markets,” said Dominic Murray,
Head of Cross Border Hotel Transactions (EMEA) at CBRE. “Furthermore, expansionary monetary policy across Europe has seen the British pound and euro both weaken in relation to the dollar, further increasing the region’s attractiveness to international investors.”
Middle East and Asian investors in a bid “to prevent real estate bubbles in local markets there has been a structural shift towards investing internationally, while at the same time diversifying across a broader selection of asset classes.”
And these investors are in for the long term.
“Hotel trades achieving in excess of 700,000 per room are commonplace at the top tier of the market and yields are eye-wateringly sharp, often too sharp for most real estate investors to realise their required IRR (internal rate of return,” the CBRE report states. “However, Middle Eastern purchasers, be it ultra high networth individuals or sovereign wealth funds (SWF) are notoriously liquid and thus benefit from an enviably low cost of capital combined with a long-term, multi-generational perspective.
“This enables them to deploy vast swathes of capital into the world’s most robust hotel markets and acquire assets where the timeless appeal will almost guarantee income in perpetuity.”