QIA prepares for first property sale as investment strategy evolves for a new era
The Qatar Investment Authority is lining up its first major property sale in a sign of how the depressed oil price could have a dramatic impact on real estate investment activity.
The sovereign wealth fund has hired CBRE and JLL to find a buyer for 1 Cabot Square, E14, which is expected to attract bids of as much as £450m – a 4.25% yield. The building is leased to Credit Suisse for around 20 years and while it is in Canary Wharf – the majority of which QIA bought in a joint venture with Brookfield last year – it no longer fits with the fund’s evolving investment strategy following the collapse of the price of oil.
Around 70% of QIA’s global property portfolio – which it has built over the past 10 years – is in Europe.
It is understood to be seeking to diversify its holdings geographically and at the same time has been targeting real estate opportunities which offer the potential for greater returns.
Other sales being considered by QIA include the Miasteczko Orange complex in Warsaw, Poland.
Instead of assets such as Cabot Square, which are long let and offer little opportunity for asset management, it has been focusing on opportunities including Canary Wharf Group, which gives it exposure to a substantial development pipeline and potentially higher returns.
Oil prices are hovering at a third of their 2012 peak, at less than $40 (£27.40) per barrel, and are forecast to remain depressed for much of this year.
Qatar’s budget last year was predicated on prices of $65 per barrel. However, its 2016 budget will be based on oil at $45 per barrel, meaning pressure to improve returns from its investment arm is mounting.
The drop in oil prices – caused by high levels of production from Saudi Arabia, which is attempting to kill off the shale gas boom in North America – has already had a dramatic effect on sovereign wealth fund behaviour in other asset classes. Several asset managers, including BlackRock and Aberdeen Asset Management, suffered billions of dollars in redemptions from sovereign clients last year.
While the impact on real estate is likely to be less clear cut, with capital reinvested rather than simply withdrawn, there are several examples of oil-backed sovereign funds selling trophy assets, such as ADIA’s recently completed £140m sale of 5 Fleet Place, EC4, to China’s Poly Group.
Toscafund chief economist Savvas Savouri said oil-backed funds in countries where currencies have weakened against the dollar – Norway, Russia and Kuwait – were likely to be more inclined to sell than those with dollar-pegged currencies – Saudi Arabia, United Arab Emirates, Qatar and Oman – as UK assets could provide vital capital.
However, he added that falling oil prices and turbulence in the Middle East could force Saudi Arabia to “break its currency free from the dollar, with considerable consequences for how they behave towards their overseas interests”.
Middle East heads West
The oil price collapse is also driving a wave of investment by private capital from the Middle East diversifying away from domestic markets.
Savills’ head of cross-border investment Rasheed Hasan said: “The sovereign funds are hard to read, but instinctively they have less surpluses to invest overseas.
What is apparent is that the non-state vehicles, private investors and property companies are increasing their appetite.”
Dubai-based developer SRG has exchanged contracts with Blackstone to buy the High Holborn Estate, WC1, for more than £135m, in a move from residential development in the UAE.
It follows Dubai’s Damac Properties, which last year bought the Jenga Tower residential scheme in Vauxhall, SW8.
Data released by Real Capital Analytics shows Middle Eastern purchasers bought nearly £6bn of London property last year, up from £4.8bn in 2014.
