03 Aug 2024
RIYADH: Gulf Cooperation Council-based investors are expected to commit over $4 billion annually in the UK commercial property market due to favorable economic conditions, according to a new report.
An analysis by the UK-based Shariah-compliant financial institution Bank of London and The Middle East shows that this funding surge can be attributed to several factors, including falling interest rates and lower property prices, which enhance the attractiveness of UK assets.
In 2023 alone, GCC investors – led primarily by those from the UAE and Saudi Arabia – poured $2.35 billion into UK real estate.
Andy Thomson, head of real estate finance and private banking at BLME, said: “The UK has a new government in place, the Brexit decision from 2016 is firmly in the back mirror and the economy and political landscapes have relatively stable outlook compared to other countries in Europe.
“In addition, interest rates are forecast to fall during 2024 and 2025, which coupled with lower commercial property prices means the UK is very well placed to attract an increased level of inward investment from the GCC.”
The report proved prescient as after it was published the Bank of England cut interest rates for the first time since 2020 – dropping the base rate by 0.25 percentage points to 5 percent.
According to BLME’s research, 87 percent of interviewees identified falling interest rates as a crucial factor for increased GCC investor interest over the next year.
There is also a growing opportunity for backers to realize a “green premium” by upgrading assets to meet new environmental standards.
Sustainable buildings are increasingly valued higher, with a sales price premium of 8-18 percent for green-rated properties compared to their non-green counterparts.
Additionally, demographic shifts and a persistent undersupply of residential properties are making the living sector more attractive.
Investment in purpose-built student accommodation is particularly popular due to the rising number of scholars from the Gulf region attending British universities. Currently, over 8,000 UAE residents are studying in the UK, nearly double the number from five years ago.
Director of Real Estate Finance at BLME, Rashid Khan-Gandapur, said that GCC investors are looking to diversify their portfolios and see the UK market as ripe with opportunities to enhance existing building stock, especially through improving environmental, social and governance credentials.
“Investment in UK commercial properties as a whole is expected to grow to over $4 billion annually. This figure will be boosted further by investment in the residential sector, with GCC investors showing a growing appetite for undertaking large-scale living sector investments,” he added.
The report is based on an online survey conducted between April 26 and June 5, involving 16 GCC investment experts, and in-depth virtual interviews with nine of these contacts.