For years, many foreign institutional investors dismissed UAE real estate as speculative and unsustainable, considering it merely a playground for luxury developments catering to the ultra-wealthy, rather than a serious asset class worthy of inclusion in their portfolios. That narrative is no longer true.
Today, the UAE has evolved into a fit-for-purpose, tech-forward powerhouse, and its real estate market is a relatively stable, income-generating opportunity. It is an investment prospect that institutional investors from Europe, the US and Asia – major pension funds and family businesses in particular – can no longer afford to ignore.
About 90 per cent of investors in our own luxury real estate funds, for example, are institutional (typically investing $10 million to $50 million each) and 80 per cent of the total are international. As for the remainder, about 10 per cent are high-net worth individuals (typically investing $1 million to $2 million) and 20 per cent are local family businesses.
It has been great to see interest levels on the rise from European and antipodean sovereign wealth funds, though they have yet to deploy capital. There is also evidence of private equity firms and other structured real estate funds following long-term capital allocation strategies.
Let’s look at the global context. Institutional investors looking for real estate opportunities seek a good risk-return profile. That means markets that are economically and politically stable with reliable governance and processes, and that show good growth prospects.
If you look at the risk-return matrix in the US as an example, it is reasonably easy to identify the risks and appreciate the solid financial structuring that comes around its offerings. To match that, you must be a seriously good asset manager in other parts of the world, where the financial set-up is not the same. For example, instead of a 20-year interest-only loan that prevails in America, we have floating interest rates on loans in the UAE, which makes a huge difference.
Of course, real estate investment opportunities for institutions are not without challenges. There are top-down macroeconomic risks in the form of an increasingly “fractured” global landscape, according to the World Economic Forum’s latest Global Risks report. These include rising geopolitical and economic tensions, climate change, societal polarisation and inequality, which can threaten stability and development.
Bottom-up risks are more complex. For example, it is more difficult to obtain building permissions in older markets, which can result in lengthy project timescales. On the other hand, scarcity of space in these markets can mean higher values because of higher demand. In emerging markets, meanwhile, true “luxury” developments with exceptional build quality are not as prevalent as might be expected.
Another question is that of volatility, which is generally higher in the Middle East and North Africa. Compared with Europe and North America, where much real estate development is replacement-driven, demand for real estate investment in the Gulf region can fluctuate according to economic and geopolitical factors in the rest of the region, Eastern Europe, the subcontinent and Asia-Pacific. Other challenges for investors in the UAE can include rising construction costs due to the shortage of skilled labour and materials like high-quality concrete and finishes, in addition to higher interest rates.
But institutional investors in the UAE real estate market can compensate for both this and financing differences by capturing greater returns on offer while being very disciplined as asset and fund managers. This helps them emulate or exceed the risk-return profile in other parts of the world. Some luxury real estate funds, for example, can realise a fivefold increase in value in the three years from final closing to distribution.
Most important to institutional investors, though, is having a reliable rule of law, as guaranteed by the Dubai International Financial Centre and the Abu Dhabi Global Market, both of which have good track records. Governance is something that comes up in every discussion we have with institutional investors, who react positively when they examine the Dubai Financial Services Authority’s operations and regulatory enforcement. Also, off-plan buyers have more safeguards than before, with a well-regulated land department and their investment capital going through an escrow account.
Another attraction for institutional investors is that there are more exit options available here than before. We are seeing demand for real estate portfolios from local bonds and property development firms, for example.
The shift in institutional investors’ attention to the UAE is supported by current demand. The UAE residential market was on course to reach an impressive value of $390 billion in 2024, with average prices expected to have risen by 19 per cent for apartments and 23 per cent for villas over the previous year. Secondary transaction volumes are up. Values are up. Off-plan sales are also up. Further development is expected in 2025, though the market may not grow quite so spectacularly as contractors work to satisfy last year’s demand.
I see a few underlying trends that sustain this expansion. Firstly, the country’s growing economic and political clout on the world stage. Recent membership of the Brics+ group, which represents about 45 per cent of the world's population and 35 per cent of global gross domestic product, signals the Emirates’ rising influence in reshaping global economic alliances. This is a strategic hedge and a step towards greater trade, investment and collaboration across fast-growing, emerging markets. It complements the country’s emphasis on knowledge-based economic growth, along with diversifying away from oil and gas, and boosting its technology credentials with home-grown entities.
Secondly, the UAE real estate market has matured into a sophisticated, institutional-grade asset class, characterised by mixed-use developments and logistics hubs with ever-improving product quality. Institutional players looking beyond short-term gains are focusing on stable, sustainable high yield-generating assets. They are sustainable in two ways: environmental credentials appeal to investors who know it is good for re-sale value in the long term. And excellent design and build quality imply the asset will have a long life.
The third factor is that with economic stagnation and rising political risks in the rest of the world, the UAE provides a rare combination of stability and dynamism. In many western markets, inflation, low growth and monetary tightening have eroded returns, while the Emirates maintain a strong and stable economy with moderate taxes. It is an attractive place for wealthy individuals, entrepreneurs and aspiring professionals to live.
The UAE offers long-term value for institutional investors, which is largely unmatched elsewhere in the world today, and a template for more emerging markets to follow in due course.
Martin Linder is managing partner and chief executive of Global Partners Limited, a DFSA-regulated alternative investments manager
