Western investors are looking at emerging markets

Western investors are looking at emerging markets in the Middle East, South East Asia and Asia Pacific as excesses in the mature markets will stifle economic growth, according to a real estate expert.

Delivering the keynote address at Cityscape Global on Tuesday in Dubai, Ethan Penner, president of CBRE Capital Partners and Executive Managing Director of CBRE Investors, said smart money is focusing on emerging markets, which were outperforming the more mature markets in US and Europe.

Emerging economies in the Middle East and Asia still offer sound return on investment (ROI), he said.

“Many investors believe that real estate as asset class offers diversification away from stocks and bonds and that in my opinion is a mistake. Commercial real estate is completely and perfectly correlated one-to-one to the broader economy. The macro economic climate and the health of the financial system are the two driving forces that dominate real estate value,” commented Penner.

“Real estate professionals could not and do not create tenants out of thin air, only a growing economy could generate sustainable demand for space. To get ahead of the herd, an investor should understand and anticipate macro-economic change.

“Real estate, more than any other asset class is dependent on debt. It would be unheard of for a corporation to have 60-80 per cent of its capital structure in debt, even 40 per cent debt would be considered high risk. In real estate however this is commonplace, the average is 70 per cent and frequently it can exceed 80 per cent or even 90 per cent, so when the debt capital markets catch a cold, real estate is invariably in trouble.”
 
Penner’s forecast for growth in the developed economies was equally sobering, “The best case scenario would be average growth of up to 1 per cent, reminiscent of the way the Japanese economy has performed over the last twenty years,” he said.
 
The Cityscape Global conference which is taking place at the Dubai World Trade Centre, has attracted some of the leading minds throughout the international and regional real estate industry.  They include Tim Fox, Chief Economist, Emirates NBD, Gurgit Singh, COO of Sorouh and Phillipe Baretaud, Develop Director Middle East at Accor Hospitality.

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