Adapting to a rapidly adjusting market place, we have launched a new edition of our Real Estate Investor Sentiment Survey. Instead of surveying the broader real estate market, we have identified a core group of regional - primarily institutional - investors to ascertain their views on the prospects for regional real estate. The sample also includes some international investment groups with regional exposure to add a global perspective.

The results once again clearly indicate active buyers outnumber sellers in the region. Although the general sentiment indicates declining capital values, nearly 70% of respondents were actively seeking investment opportunities in MENA. This suggests that investors are adopting long term investment strategies and may even see markets selectively stabilising.

Another key term to emerge was the notion of 'backyard investing'. Investors are focussing on markets they understand and within their perceived sphere of influence. Even though other emerging markets are consistently perceived as having higher growth potential, relatively few investors are deploying capital in those distant markets. Mature markets, like Europe and the U.S., also featured highly in terms of investor interest.

Global real estate capital flows experienced phenomenal growth over the past two years, a trend we expect to continue. However, only a negligible portion of international capital flows is directed into regional real estate. The following report analyses the reasons why the MENA region is missing out on foreign institutional investment. Critical factors include availability of suitable priced product and transparency concerns that are compounded by transactional behaviour. Regional real estate assets are often marketed to a small set of local investors and are transacted behind closed doors, which restricts the pool of assets available to international investors and can also prevent those sellers from realising full market value.

Real estate investors and developers are re-structuring their corporate strategies and portfolios to focus on stable income generating assets, but finding assets remains a challenge. There is a shortage of commercial assets in prime locations with high occupancy and strong tenant covenants and, more importantly, owners rarely want to dispose of such assets.

In summary, investors want to increase regional exposure (especially to office assets) and have the capital in place, but remain constrained by product availability. In the absence of such opportunities, investors are heading abroad - mainly to Europe and the U.S. - to find the right risk-return balance and fill the investment void.

We maintain that the MENA market has the potential to capture a higher proportion of global real estate capital flows, but the restricted product offering and opaque market processes continue to inhibit transactions and delay market recovery.

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