The UK real estate investor market and the view from The Gulf

As a firm we have an established and substantive client base across the whole MENA region. As a real estate transactional lawyer, I have been acting for investors from the Gulf acquiring commercial real estate (CRE) assets in the UK for many years. I am always very interested to understand how they view the current UK CRE market and what factors may influence their investment strategy.

As a result of the turbulent economic and political landscape in the UK in recent years it is not surprising that overall international capital into UK CRE was relatively subdued in 2023 compared to the 5 year average, with CBRE reporting that in 2022-2023"while the amount purchased by domestic investors fell 16% year-on-year, foreign investor purchases declined by a larger 44%".¹ However, during this period, the Gulf economies largely continued to thrive which meant that investors have increased purchasing power, and the expectation is that, as a sense of stability gradually returns, there will be a significant amount of increased investment from the region into UK CRE.

The sentiment is more positive than it has been in the last few years as a result of the cut in interest rates, greater political stability and falling inflation rates, however everyone is keeping a watchful eye on the budget at the end of this month.   The Bank of London and the Middle East (BLME) has predicted that investment from the Gulf is likely to increase to $4 billion annually.²  Some of this may be deployed to acquire new assets, due to  increasing confidence that the market may be bottoming out and leading to an opportunity to capitalise upon attractive pricing that is starting to emerge, but it is clear that there is also a recognition that capital expenditure is needed to upgrade existing assets particularly to improve ESG ratings which will help deliver enhanced value. 

In terms of UK CRE asset classes there is a continued interest in the "bed" sector as a result of its robust fundamentals.  Purpose Built Student Accommodation, Build to Rent, and regeneration projects all remain attractive. This is largely due to high occupancy rates led by an increase in numbers of students both in the UK and internationally but it remains a very competitive space which is a challenge for many investors due to the lack of suitable schemes and also return thresholds.

There is also a renewed interest in office investments but investors are, sensibly, being selective in acquiring future proofed stock and are often acquiring on an unlevered basis with the option to refinance in the future if interest rates continue to fall, making the price of debt more palatable. There is also a significant amount of investment focussing on repurposing older buildings into new "fit for purpose" office accommodation or conversion into residential apartments or hotels focussing on the "green " credentials which allow them to align with their sustainability goals which often form a significant part of their overall investment strategy.

There is also diversification in respect of location.  For some time now Middle Eastern investors have also been focussing on opportunities outside of London, with considerable investment into cities such as Liverpool, Manchester, Leeds and Birmingham where there continues to be improvement in infrastructure and transport and where there are opportunities for better returns.

Additionally, the UK Government recently announced that reaching a Free Trade Agreement with the GCC is a priority.  This has taken longer than anticipated but is now expected to be in place before the end of the year.   Coupled with the UK's recent expansion of Electronic Travel Authorisation to include Qatar, Bahrain, Kuwait, UAE and KSA which allows for simpler travel arrangements, it should have a positive impact on investor sentiment from the region. 

Needless to say, the UK CRE market remains highly competitive and so it is important that any financing is readily available, tax advice is obtained and the relevant structure is in place ideally in advance of any investment being identified. 

Withers has a dedicated team providing a full range of legal services supporting clients across the MENA region which includes dealing with all their UK CRE requirements.