MIDDLE EAST INVESTORS TO TARGET AUSTRALIAN CITIES

THE Qatar Investment Authority's (QIA) commitment to Lendlease's $2 billion Commercial Tower 1, at Barangaroo South, has taken Sydney into CBRE's list of top 15 markets for Middle East investment worldwide over the past 18 months.

The investment could mark the beginning of increased interest in Australian commercial real estate from Middle East investors, says the CBRE report, In and Out, which examines investment flows in and out of the Middle East.

Chris Ludeman, global president CBRE Capital Markets says the destinations of investment flows from the Middle East are becoming more diverse than simply London and New York, which have traditionally received the bulk of foreign investment from the Middle East.

"Other U.S. cities such as Atlanta and Asian markets are moving up their agenda. The major Australian cities could be next. We expect investment flows from the Middle East to be substantial for the near future interest in the hotels sector will remain strong, while the industrial and logistics sector will take an increased share of capital," says Ludeman.

In total, Sydney attracted US$404 million in foregin investment from the Middle East, putting it in 13th place, behind Tokyo (US$437 million). New York City took out top spot, with US$6.5 billion, ahead of London in second, with US$4.7 billion in investment.

According to the CBRE's report, investors from the Middle East were major buyers of commercial real estate in 2015, accounting for 15 per cent of all cross-regional investment worldwide. Middle East outbound capital flows into global commercial real estate reached nearly US$10 billion in H1 2016.

In total, there was a 69 per cent increase in outbound investment from the Middle East year on year, to  US$24 billion in 2015, which is attributed to the moves of Sovereign Wealth Funds for both Qatar and the United Arab Emirates increasing their international investments, favouring commercial real estate.

The National Director of CBRE's Australian Capital Markets team, Josh Cullen, agreed that there was potential for increased investment in Australia, particularly in the major eastern seaboard markets.

"In recent times we have seen limited investment from the Middle East, however they are major global players and the returns available in markets such as Sydney, Melbourne and Brisbane should be attractive to these groups moving forward," says Cullen.

Markets where Middle East investors are underrepresented may also be targeted in the future.

While Sydney, Melbourne and Brisbane all feature in the top 25 destinations for cross-regional investment; to date they have attracted little investment from the Middle East.

The report states that a lack of economic diversity in the major Australian cities may have played a role in the lack of interest from Middle Eastern investors.

"However, lack of opportunity may have also contributed. Investors from the Middle East tend to target strategic assets and these do not come along too often in the Australian markets," says the report.

At Barangaroo, QIA has taken a 37.5 per cent stake in the largest tower as part of the commercial wholesale open-ended property fund named established by Lendlease. Lendlease Trust also has 37.5 per cent of the tower, while the remaining 25 per cent is owned by Australia Prime Property Fund Commercial.