Foreign investors had a record year in investments in U.S. commercial real estate in 2015. Foreign investment in direct property purchases totaled $91.1 billion last year, accounting for 17 percent of all such deals in 2015. According to an analysis done by Real Capital Analytics, Chinese investors emerged as one of the biggest players in the U.S. commercial property market.
Canadian investors also were a top foreign source of capital coming into the United States, and were behind several signature deals in 2015. Investment in U.S. commercial real estate has long been appealing to Canadian investors since Canada limits the number of dense population centers and real estate assets in which Canadians can develop or buy. Surging wealth from oil produced in Alberta over the last decade has resulted in a larger number of Canadian investments. Canadians acquired nearly double what they sold in the U.S. last year.
Foreign Investment Shifts to New Sectors and Markets
Real Capital Analytics reports that foreign investors are shifting their investments to the U.S. industrial property sector, a new trend in foreign investment. In the last fifteen years, foreign investments in this market have averaged $1.5 billion per year. In 2015, there was a dramatic shift to $27.3 billion in foreign investment in the industrial property sector. As a result, foreign investment in the industrial sector climbed to 30 percent of all investments in this sector.
Foreign investors also looked to new markets in the U.S. for commercial real estate investment. Typically, foreign investors focus their dollars on six major metro areas, including New York, Boston, Washington, Los Angeles, Chicago and San Francisco. Manhattan continued to be the top foreign investment for commercial property. The push, however, to invest in the industrial property sector resulted in more investments in smaller markets, such as Reno, Nevada, Yuma, Arizona, and Bakersfield, California.
Will this Trend of Foreign Investment in U.S. Commercial Real Estate Continue?
Real Capital Analytics believes the trend to invest in the U. S. commercial real estate will continue by foreign investors. Interest rates continue to be low worldwide and there is a significant amount of capital available to invest in the US market according to this analysis by Real Capital Analytics. There continues to be a supply of high-quality assets for foreign investments. The market has seen an increase in joint ventures, where foreign investors buy portions of existing assets, enabling U. S. investors to reap gains while continuing to hold an interest in the assets. Investment in the U. S. industrial sector will continue and foreign investment may shift to other property types such as the suburban office market.
Source: “Cross-border Investment in US Commercial Real Estate,” Real Capital Analytics, Development Magazine, Spring 2016
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