Commercial property investment volumes into the UK were initially curtailed by the uncertainty created in the aftermath of the EU referendum. Total commercial property investment volumes dipped to a little over £51bn at the end of 2016, from £71bn a year earlier, according to the latest figures from Property Data. Similarly, total investment volumes into London commercial real estate dipped by 36% to £20.7bn over the same period, writes Faisal Durrani, head of research at Cluttons.
However, investors from the Middle East have retained their strong appetite for London commercial property and the drivers behind the continued appeal for London assets goes well beyond the links the UK has to the EU. Deep-rooted trading relationships between the Middle East and the UK, along with the safe haven appeal of London have helped to cement what is a well-trodden investment pathway. On a national basis, Middle East investors accounted for 6.6% of all commercial property investment last year, or about £3.4bn, with £2.1bn committed to London alone.
The substantial oil price correction that took place three years ago has forced the hand of many Gulf governments, with 5% VAT now in the final stages of discussion before its implementation next year – a sharp deviation from previous policies of fostering a tax-free haven. This maturing attitude has meant that overseas property investment is very high on the agenda for the region’s sovereign wealth and institutional funds. The lure of a 20-25% “discount” thanks to the strong US dollar (to which most Gulf states retain a fixed peg) has meant that UK assets are at their most appealing since at least before the Great Recession of 2008.
Bahrain and the UK share a particularly close history, dating back to 1616, when the East India Company was established in the Kingdom. When it comes to the island nation of Bahrain, the UK continues to draw in funds from the Kingdom at a significant rate. Tadhamoon Capital, for instance, spent £100m in 2013 on a Paul Street acquisition in central London, which consisted of student housing, retail and office space, taking its total UK investment portfolio to £240m. More recently, Bahrain-based Investcorp purchased a $160m industrial asset portfolio in Boston and Chicago, highlighting the importance being placed on income diversification by Gulf‑based funds.
