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Azerbaijan sovereign Oil Fund aims to double €2bn real estate assets

Ruslan Alakbarov © D.R.

The State Oil Fund of the Republic of Azerbaijan, the Caspian Sea nation's sovereign investment fund, intends to nearly double its real estate holdings from $2bn to take it up to 10% of total assets of some $36bn, says its property head Ruslan Alakbarov.

SOFAZ deputy CIO and head of real estate, Alakbarov told Business Immo Europe in an emailed interview that the fund invests both directly and indirectly in property. Its European assets, which make up about 44% of total property allocation, currently amount to 5.3% of all assets of the fund. These are split 27.3% on the continental mainland, and 16.6% in the UK. For its indirect investments, the firm allocates to private non-listed funds and has no holding in listed vehicles.

"We concentrate our efforts on the biggest and most liquid markets, the so-called 24-hour cities, and try to buy high-quality assets with attractive NOI growth potential," Alakbarov said. "These markets appeal to millennials who want to live, play and work in the most dynamic cities, thereby creating job growth which in turn leads to higher demand for real estate."

Based in the Azerbaijani capital Baku, SOFAZ was established in 1999 to play a key role in the oil and gas strategy developed by national leader Heydar Aliyev. Its official mission is, "to transform depletable hydrocarbon reserves into financial assets and thus generate perpetual income for current and future generations." SOFAZ assets increased in value by 8.02% over 2017 to stand at $35.8bn, mainly due to budget revenues, asset management and the exchange rate effect of currencies across its entire portfolio.

Asked how he judges European property values at present, Alakbarov told BIE: "Real estate fundamentals remain solid in Europe, with limited new supply and strengthening tenant demand. Particular cities in Europe, what we call innovation cities, continue to outperform the region as a whole with strong tech job growth and further urbanisation." Examples of this include Stockholm, Berlin, Milan, Paris and London, "where population growth is double or in some cases three times faster than national average."

With holdings only in western Europe and none in central or wastern Europe, SOFAZ favours office, residential and logistics as asset types. "Demand for logistics is set to grow in line with growth in e-commerce sales, which is estimated to expand by 11% year on year until 2020," Alakbarov said. "Some rent-regulated residential markets, in particular Berlin, are hugely undersupplied. This creates opportunities to buy into these assets that warrant NOI growth over the foreseeable future."

He added: "We also like niche sectors with resilient demand, including student accommodation and elderly care homes, that also benefit from structural shifts in European demographics."

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