Hedge Funds, Golden Visas and the #UAE’s Commercial Real Estate Boom - Bloomberg

Hedge Funds, Golden Visas and the UAE’s Commercial Real Estate Boom - Bloomberg

Global financial centers are grappling with an anemic commercial real estate market. In Manhattan, 16% of office space lies empty — a level last seen three decades ago, while in San Francisco, the rate is twice as high. Vacancies in the City of London are sitting at a two-decade high of 11.8%.

But Dubai and Abu Dhabi have emerged as the bright spots. An influx of hedge funds has solidified a recovery built on government reforms and the emirates have begun to orchestrate moves that indicate the extent of the boom, as my colleague Zainab Fattah highlighted.

“The level of demand is pretty unprecedented at this moment, and that has been a significant driver,” Taimur Khan, head of research in the Middle East for real estate services firm CBRE, told Joumanna Bercetche on Bloomberg TV’s Horizons Middle East & Africa show.

To address that, Dubai — long the regional business hub — is spending over a quarter of a billion dollars on three new office towers, and there’s talk of further expanding its financial center. DIFC 2.0, if you will. This is in an area where a building recently sold at a $1.5 billion valuation, roads are routinely packed with cars — and good luck finding a table at Zuma.

Neighboring Abu Dhabi, the capital of the United Arab Emirates — some call it the capital of capital — is taking it one step further. A bevy of hedge funds have made a beeline for the city, drawn by a string of incentives and $1.5 trillion in sovereign wealth capital. The influx includes Brevan Howard and has led to a shortage of space. Authorities are now kitting out a whole new island to house firms, a move that will create one of the largest financial districts globally.

“We talk about financial centers and the fact that demand is originating from the likes of the hedge funds, financial institutions, global banks,” CBRE’s Khan said. “The reality is when you look outside the main financial free-zone and even onshore jurisdictions, we’re seeing a lot of firms expanding headcount significantly to service UAE and the wider region.”

One common theme with the rest of the world, Khan said, is the rush to quality. “In many global cities, we’re seeing commercial real estate on a headline level is not performing well, but LEED Gold or Platinum buildings are not only achieving a higher level of occupancy, they are also achieving a lot higher rent than the wider market.’’

“This goes to show the quality of the real estate is driving occupancy — that is true here and in a number of other key cities.”