OUR REVIEW OF CAPITAL FLOWS IN AND OUT OF GLOBAL COMMERCIAL REAL ESTATE MARKETS

Cross-regional capital flows into global commercial real estate accelerated to $125 billion in 2014, a 39% increase year-on-year. In terms of the top sources of capital. North America was in a league of its own, accounting for almost a half of all cross-regional flows. Asian investors took second position with $28 billion, while Middle Eastern buyers featured third, with $14 billion invested outside their home region in 2014.

What is the impact on the Middle East as a destination and a source of capital from the increase of cross-regional capital flows and weaker oil pricing? See inside to discover.

2015 | CBRE Research

Increase in cross-regional capital and its impact on the Middle East

© 2015, CBRE Inc.

US$ 16.3 BILLION

Sovereign Wealth Funds

Property Company

Private

Other Collective Vehicle

Institutional Other

Other

8,453

1,2381,5391,349

2,516

1,134

2014

2013

Private Wealth and Equity Funds took off as a major new source of outbound capital from the Middle East. In light of weaker oil pricing, direct real estate acquisitions by SWFs slowed in 2014, but the effect might be even stronger in 2015 and the following couple of years.

GLOBALISATION OF INVESTMENT MARKET

Cross-regional capital flows into global commercial real estate increased to $125 billion in 2014, up 39% year-on-year. The Middle

East was the third largest source of capital in 2014, with $14 billion invested outside the region.

WIDER GEOGRAPHIC SPREAD

WHO IS INVESTING

Saudi Arabia has emerged as a significant source of capital, from investing close to nothing in 2013 to being the fastest growing source of Middle Eastern capital outbound in 2014, with $2.3 billion invested. Qatar was by far the largest source of Middle Eastern capital in 2014, with $4.9 billion invested.

The top destinations for Middle Eastern Capital in 2014 were very diverse with London no longer as dominant (32% share in 2014 v 45%

in 2013). Activity spread across more second-tier locations in Europe and in the Americas. This closely follows the predictions that CBRE

made in the original Middle East: IN and OUT report back in 2014.

In pursuit of higher returns – Middle Eastern investors are becoming more active across a wider mix of sectors. Hotels look strong second position in 2014, with 16% share of outbound investment from the Middle East. This follows a wider investor interest towards the alternative real estate sectors – confirmed by CBRE’s latest 2015 Global Investor Intentions Survey.

RISE IN SAUDI ARABIAN CAPITAL ON GLOBAL MAP SECTOR PREFERENCES

66US$ BILLION

NORTH AMERICA

28US$ BILLION

ASIA

KUWAIT 665

QATAR 4,873

SAUDI ARABIA2,300

UAE 1,626

$US MILLION

$US MILLION

OFFICEHOTELRETAILRESIDENTIALINDUSTRIAL

7,377

2,281

1,010573

1,697

$US MILLION

US$ 14.1BILLION

Sovereign Wealth Funds

NEW YORK 1,345

MOSCOW 390

SEOUL 472

UK OTHER 702

AMSTERDAM 129

FRANKFURT 111

LONDON 4,442

BARCELONA 107

ROME 133

MILAN 145

PARIS 2,223

GERMANY OTHER 802

WASHINGTON 481

ATLANTA 199

LOS ANGELES 230

Property Company

Private

Other Collective Vehicle

Institutional Other

Other

$US MILLION

5,835

2,893

2,518

1,693

1,012

116

14US$ BILLION

MIDDLEEAST

13%

2014 saw a major shift in Middle Eastern international investment strategies towards greater geographic and sector diversification, with activity spreading across more second-tier locations in Europe and in the Americas.

There has been a slight dip in outbound capital flows from the region, from $16.3 billion in 2013 to $14.1 billion in 2014. This reflects more cautious behaviour from natural resource based Sovereign Wealth Funds (SWFs), in light of weaker oil pricing.

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© 2015, CBRE Inc.

MIDDLE EASTIn contrast to SWFs, Private Wealth and Equity Funds took off as a major new source of outbound capital from the Middle East. 2014 data and research show both, a greater allocation of investment to real estate, and more concentration on geographical diversification away from the home region. This has had a significant impact on Europe, where their combined real estate investments grew by 49% year-on-year to $5.5 billion.

Focusing on the developments in the region, there is little doubt that weaker oil pricing is having a negative economic impact.

There is, however, some positive news resulting from a weaker Euro, which is expected to benefit the consumer, considering that as much as 20% of retail goods imports come from Europe. While this is not expected to fully offset the negative impacts, the discretionary retail spending will increase.

Furthermore, the remarkable increase in cross-regional capital flows into commercial real estate is likely to affect the Middle Eastern markets before long, due to intense competition for assets elsewhere. While no significant impact is likely in the short-term, some segments of the market are worth watching carefully. These are income producing offices, development opportunities, and hotels. The latest CBRE Asia Pacific Investor Intentions Survey 2015 reported a handful of investors expressing interest in diversifying into the region.

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INCREASE IN CROSS-REGIONAL CAPITAL AND ITS IMPACT

Iryna PylypchukDirector, Global Capital Markets Researcht: +49 69 17 00 77 92 e: iryna.pylypchuk@cbre.com

Nicholas MacleanManaging Director, Middle Eastt: +971 4 437 7232e: nicholas.maclean@cbre.com

CONTACTSFor more information regarding this report please contact:

DisclaimerCBRE Ltd confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

© 2015, CBRE Inc.