Arabian Gulf funds find Europe's finest hotels still attractive as ever

Despite tumbling global prices of oil, sovereign wealth funds from the UAE, Qatar and Kuwait are continuing to pour billions of dirhams’ worth of investment into some of Europe’s finest ­hotels.

About US$5.2 billion of cash from Middle East investors has found its way into hotels in the UK and mainland Europe over the last 24 months, according to the property broker CBRE.

Last year alone, Middle East buyers spent three times as much on European hotels as they did at the height of the previous global property boom in 2007.

The big-ticket buying spree from GCC investors includes three of London’s highest-profile hotels – Claridge’s, the Berkeley and the Connaught, which were bought in April last year by part of Qatar’s sovereign wealth fund.

Constellation Hotels, the hotels unit of Qatar Holding, itself a part of the Qatar Investment Authority, is understood to have paid more than £600 million (Dh3.1bn) each for the hotels – a sum that works out at nearly £3 million a room.

The deal, which came after a lengthy legal fight with the Sark-based media tycoons the Barclay brothers and the Irish investor Paddy McKillen, was rumoured to have beaten a bid by Abu Dhabi’s sovereign wealth fund, the Abu Dhabi Investment Authority.

CBRE said that despite widespread cuts in federal budgets as a result of falling oil prices, state investors from Qatar, the UAE and Kuwait are increas­ingly searching for secure income streams outside the region.

It said that five-star hotels in key UK and European destinations continue to attract wealth from funds set up to invest the oil wealth from GCC countries because they are seldom traded and so attract rarity value.

“While the fall in oil revenue for many of the sovereign wealth funds will have an effect on spending ahead, trophy and strategically important assets will continue to attract strong interest, particularly in the gateway cities of US and Europe,” said Nick Maclean, the managing dir­ector at CBRE Middle East. “Investment in the highest-quality hotels in the most international cities is seen as a secure component of the real estate markets.”

“Medium to long-term investment into these top-tier hotel assets generally reward owners with a high level of stability in an increasingly volatile world of commodities and equities,” he added.

Hotels in the United Kingdom remained the key target market for Middle Eastern investment, receiving £2.7bn of Middle East outbound investment.

The UK was followed in popularity by Italy, where Middle East investors spent €570m (Dh2.26bn) and France, where they paid another €566m.

Qatar was the biggest spender over the 24-month period, snapping up five InterContinental hotels including the Carlton in Cannes and the Amstel in Amster­dam in 2014 as well as Le Grand hotel overlooking the opera house in Paris in a separate deal.

However, purchases this year also included Qatar Airways’ acqui­sition of the four-star Sheraton Skyline at London’s Heathrow Airport and the Novotel Edinburgh Park, suggesting that some Middle Eastern investors are looking beyond high-profile, five-star purchases.

Overall, property brokers predict that the total volume of investment from the Middle East SWFs will decline significantly this year as Gulf countries cut back on spending because of the weak crude prices.

Instead, they say that funds will spend more of their limited budgets on the domestic property market.

“While some SWFs will retain their existing mandate to invest globally, we expect more funds will be diverted into the local property market through direct property purchases and through funds and external managers,” said Craig Plumb, the head of research at JLL’s Dubai office.

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Lucy Barnard

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