John Davis, Chief Executive Officer Colliers International
Colliers International released its 2011 Global Investor Sentiment Survey today, which takes the pulse of property investors worldwide, measuring their appetite for risk, optimism, key concerns and sense of market cycles.
In the Middle East, 70% of investors surveyed reported they were more than likely to look to increase their real estate holdings over the next 12 months, with two-thirds reporting target returns in the region of 15-20%. Investors remain relatively nervous regarding risk, with half reporting that they did not feel compelled to move up the risk curve at all compared to early 2011. This view is in line with global investors, the majority of whom reported no increased risk appetite.
Investors in the Middle East stated an appetite for hotel and residential assets above the other asset classes, with residential in Saudi Arabia and hotels in Egypt the most popular investment targets.
Two key issues were flagged by respondents in terms of what factors would play a key role in their ability to expand their portfolios: the supply of “for sale” property and “political risk”. The political concerns stem from the great uncertainty in the region regarding the future shape of governments and what impact their decision making may have on the real estate market.
“Demand continues to outpace supply in the lower end of the residential property sector in the Kingdom of Saudi Arabia. However, with government plans to spend nearly $70 billion on low-income housing to satisfy the demand of a growing and financially empowered middle class, the market outlook for Saudi looks particularly strong.
“In Egypt we are seeing a lot of cautious prospecting with an intention to buy. While investors wait to see if a change in leadership and supporting government will herald in a new era of stability, their conviction in the country’s long term fundamentals, especially in the tourism sector, will likely drive opportunistic acquisitions of hotel assets,” said John Davis, Chief Executive Officer, Colliers International Middle East and North Africa.
The cost of finance for real estate investment has shown no signs of improvement with 60% of respondents in the Middle East reporting financing costs had shown no change since early 2011. Some respondents noted that even when looking for finance for fully occupied prime office buildings on long leases, banks showed a great deal of nervousness and risk aversion.
Looking at the occupational cycle in the Middle East, the second largest portion of respondents (30%) took the view that the market is at around five o’clock, with some minor rental falls still to occur. A further 40% stated that they believed that the market had reached the bottom of the cycle, six o’clock, or was showing some minor improvements having reached seven o’clock.
Looking forward, respondents in the Middle East were mildly optimistic with a notable portion (40%) suggesting that they thought the cycle may have reached eight o’clock in twelve months’ time. However, 50% took the view that the market would be between five and seven o’clock, e.g. still hovering around its floor.
On a positive note, 70% of the investors we spoke to in the Middle East believed that the relative value of real estate had improved strongly compared to ten years previously. Strong increases in output and growing populations in the region making real estate a fundamentally more important asset within their economies.
This contrasted with the view in Europe where the majority of respondents believe that real estate’s relative value had not increased.