Why US real estate is hot property for Middle East investors
Why is the Middle East region carrying the strongest investment momentum right now?
At Glenwood we understand that there is a desire to reduce reliance on the oil economy and increase diversification through investment in other sectors both domestically and internationally. These nations will benefit from US$1T in additional revenue over the next four years due to the increase in commodity prices. At Glenwood, we believe this additional revenue could be strategically deployed to capitalize on wavering economical environments elsewhere that can bolster their diversification efforts. Thus, creating a relatively strong investment momentum.
There is an increase in private wealth in the Middle East that is significantly higher than other major economies. This growth in private wealth is expected to continue in the region. This could be attributed to increased government spending, positive investor sentiment locally, as well as the USD peg to several local currencies.
Increasingly, Middle East investors are looking to the US as a preferred location for global investment. Why is the US market an attractive one?
At Glenwood our Middle Eastern investors are bullish on the US for two main reasons. First, oil-producing Middle Eastern countries are benefiting from the increase in commodity prices and a relatively robust economy at home. Second, the US elections are almost approaching at the end of 2024. The trough of the Great Recession of ’08 lasted six months and it is estimated that this bottom out will be shorter.
We feel that investing in the US now while assets are on discount and commodity prices remain high, provides an opportunity to make a healthy return in both the short and long term from robust assets like multifamily and industrial real estate.
At Glenwood, we have owned and operated assets internationally and the US has consistently demonstrated resilience across multiple asset classes. The US has the largest consumer market in the world, the strongest GDP of $20T and a population of 325 million. It also ranks among the best repeated for overall ease of doing business, offers a robust regulatory infrastructure, predictable legal system, and a business culture that encourages free enterprise and competition.
Middle Eastern investors come to us at Glenwood because they are looking for that long-term stability and growth that USD denominated income can offer. This is further exacerbated by the currency peg between the USD and several GCC currencies providing zero currency fluctuation risk.
When it comes to FDI into the US, international investors get to compete on a level playing field across almost all sectors which increases its competitive advantage as a global player in the investment space.
What are the asset classes that UHNWIs in the Middle East region invest in?
Our proprietary research model on the market shows that UHNWIs seek global diversification as an imperative part of portfolios for long term stability and growth. Family offices and Sovereign Wealth Funds (SWF) in the Middle East, for instance, prefer real estate as an asset class, contributing approximately 30-40% of the portfolio.
We are already seeing SWF increase their US allocation to capitalize on a relatively robust local economy to acquire assets at a discount overseas.
The world’s largest SWF, the Abu Dhabi Investment Authority (ADIA) with $800 billion in assets, recently increased its target allocation from 45% to 60%. Investors come to us at Glenwood because real estate offers that stable element to investors’ portfolios due to its multidimensional benefits such as consistent cash flow and capital appreciation.
Specifically, in 2022 there was an uptake in SWFs acquiring industrial, logistics and living real estate asset classes over office and retail driven by the rise in e-commerce and shortage in housing.
The MENA SWFs have benefitted from taking a proactive approach to investments in private markets by allocating the highest per cent to private markets compared to the other major regions globally.
Why is real estate in the US an attractive option?
The US continues to outperform other developed economies in terms of rent increases. In the industrial segment, rents increased by 16% driven by increases in e-commerce and 19% in housing driven by a housing shortage and recent rate hikes creating an even higher barrier to home ownership, thus, a stronger renter pool. It is also expected that 1.2m people will enter senior living age every year in the US, increasing the need for specialized assisted living facilities.
We feel that investing in the US now while assets are on discount and commodity prices remain high, provides an opportunity to make a healthy return in both the short and long term from robust assets like multifamily and industrial real estate.
What are some of the other trends you are seeing with Middle East investors?
Co-investing among family offices has increased due to a higher interest to acquire higher value assets with other family offices. Other M&A’s and strategic partnerships are also expected to rise to increase the competitive advantage in certain sectors.
Co-investments are minority investments directly in companies alongside the lead sponsor – it enables HNWIs and institutional investors to increase their exposure to lucrative assets with lower fees to maximize their returns.
At Glenwood, we have a long history of co-investing and there has been a greater interest in this strategy in the last 20 years. It is estimated that more than $175b was raised in co-investment structures since 2000.
Co-investments can bring a wealth of benefits to investors’ portfolio and the UAE is at the heart of Glenwood’s inception. Glenwood is the only fintech platform that facilitates real estate co-investment opportunities for Middle Eastern investors across multiple real estate asset classes in the US
And what about attitudes towards ESG? How important are ESG considerations for ME investors today?
Attitudes towards ESG are shifting in the region, particularly businesses with a global presence and are looking for Green rated buildings to satisfy ESG initiatives.
Through our research at Glenwood, it is estimated that 90% of office buildings in developed cities are more than 10 years old and would not meet energy efficiency standards that are in place today. Further, 80% of office buildings which are in operation today will still be in use in 2050.
Liquidity, pricing, and debt are determined by a buildings profitability and emissions are a prevailing component already accentuated by rising energy costs and labor shortages. Many companies now place a greater emphasis on their commitments to Net Zero Carbon (NZC) which will increasingly influence their decision to occupy one building over another.
At Glenwood, we ultimately believe that businesses/tenants and real estate owners must work collaboratively at an accelerated pace to mutually meet NZC targets.
An exclusive by-invitation launch event for select professional investors will be held at the Dubai International Financial Center (DIFC)’s Capital Club on February 2. www.glenwoodequity.com