Mispricing affecting MENA real estate

Mispricing affecting MENA real estate

JLL, Jones Lang LaSalle, Real estate report

The MENA region is missing out on significant regional and global capital flows because of the shortage of investment grade product and the lingering price gap between buyers and sellers, according to Jones Lang LaSalle (JLL).

This latest version of JLL’s Real Estate Investor Sentiment Survey highlights two clear trends. First, the amount of overseas capital allocated to investing in MENA real estate is negligible. Second, although local investors are seeking to increase exposure within the region – particularly in those countries considered stable like the UAE and Qatar – activity is limited by type of product available and asset pricing that does not fully incorporate local market risks.

In a region awash with liquidity, the lack of tenable investment opportunities leads investors to deploy capital overseas. JLL states that the MENA real estate markets have the potential to capture a much higher proportion of capital flows from both international and regional buyers. Unlocking this potential, however, will require a few adjustments: an increase in the product available, a willingness of owners to transact with greater transparency and realistic pricing that is benchmarked against global markets.

Andrew Charlesworth, head of capital markets for the MENA region at Jones Lang LaSalle, said: “Whilst recent events have created some uncertainty across MENA, there are areas within the region, particularly the GCC, where there remains a reasonable level of demand among local investors. The problem is one of finding and securing the right product at a price that makes sense.”

The report also indicates that investors continue to be frustrated by the lack of bank finance and the cost of financing when it is available. Increased risk aversion is leading investors and developers to adjust their corporate strategies and focus on building stable income generating portfolios.

Lack of product, mispricing, and limited finance availability thwarts transaction, portfolio restructuring and rebalance of portfolio risk. Even for investment grade commercial properties (buildings in central locations of high demand with long term leases and strong tenant covenant) available in the region, institutional investors are simply not willing to purchase at yields available in mature markets like London.

Together with limited transaction activity, the custom of privately conducting local investment deals discourages international investment and inadvertently stifles recovery of the regional real estate markets.

The 2011 Institutional Edition of the MENA Real Estate Investor Sentiment Survey focused on understanding the perspective of 30 key regional – primarily institutional – investors, but the sample also includes some international investment groups to provide a global perspective.

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