The shine may be wearing off for high-end real estate investments by sovereign wealth funds, according to a new report, a consequence of perceived market frothiness and increased competition for property assets.
Sovereign wealth funds collectively closed $5.9 billion in real estate deals in the first half of this year, according to the report from Institutional Investor’s Sovereign Wealth Center. That was a 43% decline in value compared to the same period last year.
Sovereign funds, some of the largest of which are based in the Middle East, have become major players in real estate in recent years.
Funds from Abu Dhabi and Singapore, for example, were the main backers of the $1.3 billion purchase early this year of the Time Warner headquarters building in New York. Qatari state investors have snapped up London digs worth billions of pounds in recent years, and reportedly agreed this month to buy London’s HSBC headquarters – the city’s largest office building – for £1.1 billion.
The recent fall-off in real estate investment probably has to do partly with rising competition for these assets with pension funds and insurance companies, the Sovereign Wealth Center report said. These competitors are looking to real estate to replace the steady income they’d received from bonds before the financial crisis, the report said.
That trend has driven prices upward, making real estate less attractive for sovereign funds. While a special interest in London real estate persists, funds by and large have responded by shifting toward assets like logistics, retail spaces and residential complexes that offer better value. They’re also looking more seriously at redevelopment and renovation projects, something the Abu Dhabi Investment Authority and the Qatar Investment Authority have put money into this year.
Among other trends the Sovereign Wealth Center spotted in the first half, it said some funds appeared to be developing more complex and intertwined relationships with external asset managers, while the success of funds’ efforts to develop more in-house expertise has been mixed.
Foreign direct investment by sovereign funds from the Middle East and North Africa went mostly into Europe and North America in the first half, the report found, with a combined 19 deals worth $3.6 billion.
- FDI in 1H by MIDDLE EAST & NORTH AFRICAN SWFs.
- Sovereign Wealth Center
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