Why Middle Eastern investors are spending billions on European hotels

Real estate consultancy group CBRE has released a new report examining Middle Eastern investment in European real estate. Over the past two years, buyers from the region invested $5.22 billion in Europe's hotels. The UK saw £2.72 billion of Middle Eastern money go to its hotels, followed by Italy and France with €570 million and €566 million, respectively.

Overall, these numbers in 2015 were triple those from the same period in 2007, and and it seems likely that the trend will continue, Trade Arabia noted. In the past 24 months, notable European properties to come under Middle Eastern control include Claridge’s, The Connaught and the Berkeley in London’s Knightsbridge, as well as the Intercontinental Paris Le Grand. Qatar, meanwhile, invested $2.5 billion in Maybourne Hotels.

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“While many predicted that the fall in global oil prices would dampen the heady tempo of investment flow from net exporting regions, Middle Eastern interest to acquire hotel assets has not abated,” the report claimed. “This is partly due to the region’s substantial oil reserves, allowing the respective nations to confidently continue with their allocations into overseas real estate—at least for the short term. Medium- to long-term investment into the aforementioned top-tier hotel assets generally rewards owners with a high level of stability in an increasingly volatile world of commodities and equities,” Nick Maclean, managing director, CBRE Middle East, said. 

Is Central Europe next?
Middle Eastern investors are still seeking new hotel markets, and Central Europe may be the next region to conquer. In late 2014, Khalaf Ahmad Al Habtoor, the chairman of the Al Habtoor Group, purchased the InterContinental Budapest, and recently opened direct flight routes from Dubai and Doha to Budapest may bring a new demographic to the area.

“The Parisian market is experiencing an influx of international capital," Catherine Rawanduz, CBRE's head of hotels France, Belgium, Luxembourg, Switzerland added. "As part of the Eurozone, Paris is seen as a secure place for investment and is the second priority, behind London, for international capital. We’re seeing a steady increase in interest from Middle Eastern investors in upscale and trophy assets, with a number of transactions taking place over the last 18 months. High net worth families and sovereign funds from Qatar are leading the pack.”

In March 2015, Qatar Airways purchased the Sheraton Skyline at London’s Heathrow Airport; this was followed by the purchase of the Novotel Edinburgh Park—a mid-market operation located in close proximity from Scotland’s busiest gateway. This may suggest that some Middle Eastern investors are now willing to consider opportunities further along the risk curve.

And as Gulf News notes, these investors are in for the long term. “Hotel trades achieving in excess of 700,000 per room are commonplace at the top tier of the market and yields are eye-wateringly sharp, often too sharp for most real estate investors to realise their required IRR (internal rate of return. However, Middle Eastern purchasers, be it ultra high networth individuals or sovereign wealth funds (SWF) are notoriously liquid and thus benefit from an enviably low cost of capital combined with a long-term, multi-generational perspective. This enables them to deploy vast swathes of capital into the world’s most robust hotel markets and acquire assets where the timeless appeal will almost guarantee income in perpetuity.”