Saudi Investors are increasingly looking to diversify into the UK Real Estate Market

After a relative pause last year, investors from Saudi Arabia and rest of the Middle are looking once again to diversify into UK real estate. Fresh from a visit to Saudi Arabia, Bik Bhuptani and Paul Simmons, Co-Founders of Greenridge Investment Management report on the mood among investors across the Gulf Cooperation Council countries (GCC).

It’s well-established that GCC investors have an affinity with the UK property market whether it be in the residential or commercial markets.  While like many global investors, the economic and political turmoil in this country last year caused some investors to pause their UK strategies, our recent visit to the Middle East indicates that the flow of capital is resuming.

Saudi Arabia is a good example of the prevailing mindset of investors. Many already have heavy exposure to the country’s development projects including the ‘giga’ schemes north of Riyadh which are expected to yield high returns. However, these are, by definition, long-term projects and many investors are keen to diversify an element of their portfolio and invest into low-risk UK real estate opportunities which yield stable returns. They appreciate the landlord-friendly legal system; attractive tax structures; market transparency; and triple net leases without opex leakage.

Some are also considering rebalancing their portfolios to hold fewer fixed-income products and allocate more funds to UK commercial real estate which can offer the same characteristics of stable cashflow and fixed maturity dates - albeit being asset-backed as opposed to just a ‘paper’ investment. For others, they want stable sources of income that originate in the UK to offset existing costs of, for example, a home in London or the expense of children being educated here. 

If these are some of the positives about British-based investment, there are also some reservations. There can be a perception that investments in UK residential assets are highly management-intensive and are low on net yield. Others have had a negative experience with highly leveraged structures which have become problematic in a rising interest rate environment. 

Accordingly, the investors we talked to were far more receptive to the structure of the Greenridge Opportunities (GO) fund we were promoting which has no leverage. The £150m fund was launched last year to acquire high-quality income-producing properties available at discounts due to challenging UK macroeconomic conditions. The first raise was heavily over-subscribed and enabled us to make three acquisitions during the past six months. These purchases were in Glasgow, Leicester and Ipswich – locations which might not be thought to resonate with the stereotypical Middle Eastern investor.  

There is clearly growing interest in the UK regions beyond London which hitherto has been the traditional preserve of Middle Eastern investment. Investors were inquisitive about our asset expertise outside of the capital in locations where there is limited best-in-class space.

During our recent visit, we were talking to the type of investors with which Greenridge has worked for the past 30 years: a mix of family offices, UHNWIs and investment managers and banks that have a high degree of sophistication and existing exposure to real estate in the UK. Our soundings from them were that the UK now represents a good buying opportunity not least due to the fall of values across the market. They are interested in core-plus assets that are well-managed; provide a high dividend coupon; and have realistic exit projections – rather than those which promise the world and a triple equity multiple!

So, whilst the real estate markets across the GCC countries will continue to provide local investors with many opportunities on their doorstep, it seems clear that other overseas markets will also be the target for those investors who wish to diversify their portfolios and capitalise on the price adjustments of the past two years. However, it is also apparent that the structuring of investment opportunities and careful asset selection will be uppermost in Middle Eastern investors’ minds.