Global Investors Favor U.S. Real Estate


by Chuck Schreiber

And just like that, 2016 is over and all eyes are now on 2017. Real estate continues to be one of the smarter investment plays due to higher yields, price appreciation potential and stability compared to other investment types. And at the top of the list is the U.S.

The U.S. commercial real estate market has been a top pick for foreign investors for decades now. 2015 was one for the books with more than $87 billion of foreign purchases of U.S. real estate assets, according to the Association of Foreign Investors in Real Estate (AFIRE), with 2016 expected to exceed that number. There is tremendous speculation that 2017 will be yet another banner year.

Here’s a look at foreign investment mega trends in the U.S.

  • Economic and political skepticism across the borders continue to push international dollars into the U.S. assets, and is likely to increase this year from 2016 levels.
  • Despite the recovering U.S. economy, international investors are practicing vigilance by seeking lower-risk opportunities, focusing on core assets in primary markets, compared to alternative high-risk, high-reward opportunities.
  • U.S. markets high on investors’ lists include Los Angeles, Boston, New York, Dallas-Ft. Worth, and San Francisco. These markets are characterized by strong job growth and expanding demographics, sustaining long-term commercial real estate fundamentals.
  • By asset type, investors continue to be hungry for office (30%), followed by retail (20%), multifamily (20%) and industrial (20%) – according to CBRE.
  • Canada, Chinese and Germans lead the U.S. investment volumes, accounting for more than 50% of foreign U.S. investment in 2016.
  • Recent legislation easing taxes on foreign pension funds and simplifying the investment processes may result in an additional bump in purchasing activity.

 

Global investors continue to favor U.S. office, and for good reason. Office continues to outperform its peers. Overall leasing activity was stable in 2016, supported by solid employment growth across all industries. JLL Research found that more than 47% of all Q3 2016 leases exceeding 20,000 square feet were expansions, helping office vacancy close out the year near 14%. Tech companies was the main driver of leasing activity in 2016.

As we kick off 2017, foreign investments should remain active on U.S. soil as buyers look to dig their talons into one of the world’s most stable and prolific markets. This year will likely see many new players, but existing investors will also likely increase their investments, while a smaller portion will maintain their holdings or reinvest in other U.S. assets. Domestic investment activity should also maintain its momentum, but with more foreign money pouring in, competition maybe be steep.

 

Global Investors Favor U.S. Real Estate Chuck Schreiber2 300x200
Mr. Schreiber serves as chief executive officer of KBS Realty Advisors and its affiliate KBS Capital Advisors. Both are nationally recognized real estate investment management firms with transactional volume in excess of $31.0 billion.