UK Real Estate – How Jersey Supports Middle Eastern Investment – Real Estate and Construction

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Simon Burgess, Head of Alternative Investments, and
Lynda O’Mahoney, Business Development Director, explores the important role Jersey will play in enabling GCC investments in UK commercial real estate post Brexit and Covid-19.

For decades, investors in the Middle East, particularly from Gulf Cooperation Council (GCC) countries, have invested in UK property due to the stability of the market and its constant returns. And it’s a market that has grown over time, both in terms of investment volume, types of properties, and geographic scope.

In 2019, Middle Eastern investors invested £ 1.5 billion in the UK market and for the first time ever, UK regions such as Birmingham, Glasgow and Liverpool combined received more investment than central London.

The types of assets acquired ranged from offices, retail and logistics to student housing, senior housing, leisure and of course the rental industry. All of this shows the demand for a variety of opportunities that the UK property market has to offer.

But then 2020 came and the world changed. The Covid-19 pandemic had a dramatic and sudden impact on Middle Eastern investments in the UK. Only £ 32 million was invested in commercial real estate in the second quarter (2nd quarter), the lowest since the 3rd quarter of 2010.

While these initial effects are perfectly understandable, the downturn was relatively short-lived. The numbers for the full year 2021 were estimated at around £ 1.4 billion – just six percent less than last year. The question that naturally arises is: where will the market go from here?

Ocorian’s Jersey-based real estate team continues to see this demand in the establishment of real estate vehicles and the provision of directors on the boards of directors. Jersey has always played a significant role in facilitating GCC property investments in the UK. As a leading participant in real estate investing for Middle Eastern clients, we took the opportunity to outline Ocorian’s view of the future market not only after the pandemic but also after Brexit, and to examine why Jersey is strongly positioned to support GCC- Support investors.

Strong appetite for UK property

There is no doubt that Brexit created a measure of general economic uncertainty, while Covid created a much more direct financial burden. That said, there remains a persistent appetite for high-performing assets among investors in the Middle East, particularly in UK real estate.

Indeed, in some cases, the pandemic has resulted in assets entering the market early and offers investors with capital the opportunity to take advantage of investments by purchasing assets at attractive prices.

However, there were winners and losers. Retail, for example, is currently a particularly challenging investment decision. The main roads were struggling to compete with the internet even before the pandemic. Bans and the failure of a number of large retailers have made the industry even more challenging.

On the other hand, commercial real estate linked to technology or logistics are the winners. Meanwhile, prime office space, particularly in central London, has held up better than might be expected, especially given the move to remote working and multinationals who claim they will reduce their physical footprint.

And the picture for office space looks relatively optimistic. According to Knight Frank, London’s office investment market will attract £ 46bn in capital this year, noting that £ 3.9bn of this “dry powder” comes from the Middle East. A main reason for this is because UK assets have a good track record of generating strong returns that remain attractive compared to other investment choices even during tough times.

The need for strong foundations

However, despite this positive note, nothing is certain. To take advantage of the opportunities that present themselves, GCC investors likely want to act quickly. However, they must also do so in such a way that they receive the greatest possible security and all due diligence and regulatory requirements are met. This includes structuring through a jurisdiction with a solid framework and partnering with an organization that has a proven record of having alternative investments.

When it comes to real estate, that choice of jurisdiction will often boil down to nothing more complicated than familiarity and proximity. For some European properties, Luxembourg is often seen as a natural fit. Cayman is often a jurisdiction of choice for the United States. For the UK, however, the Channel Islands are the go-to place as Jersey has a long history of working with GCC investors and specializing in real estate as an asset class.

By and large, Jersey fund legislation and corporate law were written specifically for international investors. The jurisdiction offers an award-winning, respected, well-regulated and regulated platform and is recognized worldwide for its real estate expertise – with a critical mass of fund administrators with extensive knowledge of the asset class.

With GCC investors in particular, Jersey signs multilateral protocols for global information exchange involving countries in the Middle East. There can therefore be clear, transparent and open relationships within the framework of these agreements.

Over the past several decades Jersey has worked particularly hard to ensure that its flexible range of products remains attractive to GCC investors. With its skills and expertise in Islamic finance, Jersey is able to support Islamic financial products and Jersey SPVs can work with a range of Shariah-compliant Islamic capital market transactions.

Work with the right partner

Notwithstanding Jersey’s robust offerings, GCC clients have strict standards and expect their fiduciary partners to have the necessary expertise and the ability to provide a full suite of appropriate and relevant services. This is where Ocorian’s strengths come into play.

The Ocorian team in Jersey specializes in introducing Sharia-compliant investment platforms. This experience allows us to be efficient both in setting up the fund or platform and in day-to-day management. However, this is only one facet of our extensive expertise in fund management.

When it comes to real estate investments, we employ Chartered Surveyors as directors on boards of directors. This brings a depth of expertise to the Board of Directors that gives investors the confidence and confidence that their directors can properly advance their interests. More recently, suitably qualified directors have also ensured compliance with the substance regulations introduced in many countries.

For customers and investors who wish, we also offer our surveyors the opportunity to visit and report on our customers’ property. This is helpful for customers who live far away or have limited travel, which was very common during the pandemic.

We also appreciate that clients who set up structures in Jersey may wish to set up structures in other leading fund regions such as Cayman, BVI or Luxembourg at a later date. Thanks to our global network of offices and professionals, we can help you with this.

While the UK real estate landscape appears to be changing, it is clear that Middle Eastern investors still view it as a strong asset class and capital continues to be used on projects of various sizes and types. Jersey (and providers like Ocorian) will no doubt have a role to play in making sure this happens effectively and successfully.

GCC investors are an important part of Ocorian’s customer base. That is why we have demonstrated our commitment to the region by establishing a presence in the DIFC.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.