GCC investors expected to spend more than $4bn in UK commercial property market annually: Bank of London and The Middle East report

 

• Falling interest rates, improved affordability to acquire assets and improved outlook for increased investment returns to drive GCC investor appetite
• Growing investment appetite for good quality and flexible assets with strong sustainability credentials seen as emerging trend
• Purpose-built student accommodation (PBSA) buildings experience rise in demand due to growing number of students form the Gulf region at British universities
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01 August 2024: Investment into UK commercial property by Gulf investors is expected to grow to more than $4bn (£3.1bn) annually, according to new research from Bank of London and The Middle East (BLME), a Sharia’a compliant bank based in London.

The research finds that the UK market is heading for a once-in-a-decade economic alignment, with cuts to interest rates expected later in the year, a new Government in place, falling inflation and lower property prices in some segments of the market creating an opportunity for GCC investors ready to deploy their capital. 87% of interviewees BLME spoke to for the report said falling interest rates would be a key driver of GCC investor appetite over the next 12 months.

Following an extended period of uncertainty when capital was kept on the sidelines, BLME believes significant pent-up demand from investors is about to be unleashed. BLME’s third annual report tracking GCC investment into UK real estate, Opening the Door: Is the UK’s property sector about to get an influx of investment from the Gulf?, suggests three key factors are driving the increase:

1. Economic alignment with cuts to interest rates expected later in the year, falling inflation and lower property prices combining to increase the UK’s attractiveness.
2. The opportunity to release a lucrative ‘green premium’ by upgrading assets which fall below new or anticipated environmental requirements.
3. Living sector opportunities being driven by demographic shifts, as well as a longstanding undersupply of residential properties.

Rashid Khan-Gandapur, Director, Real Estate Finance at BLME, commented:

“We anticipate investors from the GCC will look to the UK to diversify their portfolios, and they will see profitable opportunities to invest and improve existing building stock including the enhancing the ESG credentials as a driver of value. Investment in UK commercial properties as a whole is expected to grow to over $4bn 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.”

Andy Thomson, Head of Real Estate Finance and Private Banking, at BLME, commented:

“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 highlights a growing appreciation of the need to optimise assets’ including their ESG credentials, as market and regulatory pressures ramp up the value of sustainable buildings. Today, there is a sales price premium of between 8-18% for green-rated buildings compared to equivalent buildings without a BREEAM rating.[1]

Looking to the future, BLME predicts that demographic trends and supply shortages will make the living sector a more popular option for investors in the future – particularly those from the GCC.

Purpose-built student accommodation in particular is a popular asset for investors, with 68% of respondents saying their clients were focused on the sector, because of the structural shortfall and low tenant failure rates. The UK remains a popular choice for students from GCC with a record number of UAE residents applying to UK universities. Recent data from the Higher Education Statistics Agency (HESA) shows that more than 8,000 are studying in British institutions – almost twice as many as compared to five years ago. [2]

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