Saudi Arabian investors are increasingly active in the UK’s regional property markets. They are looking to take advantage of historical underinvestment by institutions in northern cities, low supply of rentals for young professionals, and higher returns than in London.
Among the Saudi property investors with UK growth strategies are Lote Global, which plans to add another 3,000-4,000 rental apartments to its 2,000-strong portfolio over the next five years through Manchester-based Beech Holdings.
Eamar Developments & Partners, meanwhile, has a £60 million ($72 million) portfolio in the north-west and a further £12 million to invest within the next two years.
Tadawul-listed Al Majdiah Residence is planning a £15 million conversion of a former cotton mill in Stockport into more than 200 flats with leisure facilities and offices – currently the largest single project by a Saudi investor in Greater Manchester.
“There is definitely an interest among Saudi investors in UK real estate because of the rule of law, mature economy, and banking infrastructure that allows you to invest in a diversified manner,” said Riyadh-based Lote Global director Abdulaziz Bin Abdul Hameed Al Bassam.
“But Saudi investors used to only focus on London. We’re now seeing more and more capital branching out to areas outside London, where there are huge opportunities.”
Manchester and other northern cities are trying to drive investment and give weight to Whitehall’s policy of levelling up the regions.
Top-tier universities are attracting talent to these cities, fuelling increased demand for housing.
The Covid-19 pandemic accelerated this trend, said Al Bassam, as remote working enabled people to seek a cheaper life outside the capital.
“Five years ago, if I had come to Riyadh to talk to prospective investors about projects in Newcastle or Sheffield it would have been a very difficult discussion,” said Lote director Wasim Choudhury.
“It’s now a relatively straightforward discussion. There’s a lot of awareness of what these markets are and where the opportunities lie, and consequently capital that would like to co-invest with us. That’s a very big shift.”
The regions have seen historic “underinvestment by traditional institutions and there’s an opportunity to get in there before them”, added Beech chief executive Stephen Beech.
In 2019 Middle Eastern investors deployed more capital into UK regional cities than central London for the first time, according to consultancy CBRE.
The preferred locations were Birmingham, Bristol, Liverpool and the Scottish cities of Edinburgh and Glasgow.
In the second half of 2022 the volume of Middle Eastern buyers acquiring property in prime central London hit a four-year high, said consultancy Knight Frank, suggesting that these buyers are as keen as ever to snap up trophy assets and second homes in the UK capital.
However, for Lote – which has no London property, although its directors privately own London assets – the economics are not as compelling.
“The age-old mantra of ‘invest in London because it’s safe and you get capital appreciation’ is broken,” Choudhury said. Investment yields are lower – around 2-2.5 percent compared with 5-6 percent in regional cities and up to 8 percent in some northern cities, where property is cheaper.
Since interest rates went up last year the cost of refinancing investments in London has doubled or even trebled, given that loan-to-value rates have historically been higher there, he added. “The yield is now negative on a lot of London property.”
The other relevant factor for Saudi property investors is capital appreciation, which in London has been around 4-5 percent over the past five years, he said. In the regions, especially high-growth cities such as Manchester, the figure is more like 20-25 percent.
In 2020 Lote invested an undisclosed majority stake in Beech Holdings, enabling the build-to-rent developer to deliver 1,000 apartments in Manchester with a gross development value of around £250 million.
A further 1,000 units are pre-rented and in construction, including Beech’s debut scheme in Newcastle – a conversion of a disused office building into 241 apartments. The project is part-funded with a £20 million loan from Bank of London and the Middle East.
With Lote, Beech plans to enter other cities such as Birmingham and Sheffield to build a further 3,000-4,000 units in the next five years. It is in talks with prospective co-investors from the Gulf, and a deal is expected soon.
Lote also invests in Cityheart, a developer of public sector regeneration projects in the North, including the £135 million Wigan Galleries.
Eamar Developments manages a portfolio for several high net worth individuals, businesses and families from Saudi Arabia, Kuwait, Qatar and the UAE. Among the investors are the Al Khobar-based Al Assasyah family, which owns Basic Electronics Company.
Eamar is managed by SurvProp and Al Harby Consulting, and funds are invested exclusively in real estate in the north-west. Among its assets are the 86,000 sq ft Stockport Pyramid, the former headquarters of Cooperative Bank. Eamar is in talks with parties interested in leasing the building and hopes to reach a deal this year.
Other assets include three apartment blocks in central Manchester, and there are plans to build two mixed-use developments in the city and a luxury housing scheme in Cheshire.
“Mena investment appetite is strong for residential and mixed-use property in the North West,” said SurvProp commercial surveyor Ahmed Yaseen.
“Over the next 18 months our focus will be on opening up the market to retail investment clients in Saudi and across Mena, through off-plan and block sales and an on-site management service.”