Foreign Investors Love U.S. Commercial Real Estate Investments
Commercial real estate may have declined in 2016, thanks to a year of global uncertainty, but foreign investors jumped in “with both feet” to invest significant sums in the U.S. real estate market last year. The big news here is China. Chinese buyers sunk $33 billion into commercial and residential real estate in 2016, a 53% increase over the previous year. Much of that figure was dedicated to financing the acquisition of U.S. properties.
In fact, China is now the biggest purchaser of U.S. commercial real estate properties in the world, outpacing Canada for the first time last year with deal volumes reaching $19.2 billion in 2016, compared to Canada’s $13.1 billion. Almost a third of all foreign commercial real estate purchases, 29%, now come from China. Moreover, the majority of these purchases were for deals in excess of one billion dollars.
Why the United States?
The United States is still a safe haven for many countries seeking investment opportunities in places with relative political and economic stability. Countries like China invest here in an effort to diversify their holdings and provide a hedge against their depreciating yuan. The Canadians have long invested in the United States commercial real estate market because their own country has limited development potential for some commercial assets.
Where Are the Investments?
Typically, foreign investors seek the most proven and stable commercial investment markets. While Florida and New York were the two top states for foreign buying and selling in 2016, activity tends to be more narrowly focused in a few urban areas: New York, Los Angeles, Chicago, San Francisco, and Phoenix were the top markets in 2016.
The majority of these investments — nearly three-quarters of it — are in office and hotel properties. Here, the Chinese follow established trends, investing 46% of their total acquisitions in Manhattan real estate.
What Does the Future Hold?
No one expects a surge of foreign investment like there was in 2016. For one thing, Chinese regulators have stepped up their oversight into large capital outflows from China, and now mergers and acquisitions in excess of one billion dollars are banned. Additional regulations designed to preserve China’s U.S. currency reserve will slow down deal movement for the immediate future.
Other challenges to watch out for are changes to international trade agreements or a continued international economic slowdown. And of course there are some predicting a commercial real estate bubble. However, most analysts remain optimistic about continued foreign investment in the U.S. commercial real estate market.
Lawrence Yun, chief economist for the National Association of Realtors, gives an overall assessment, remarking that “[n]early half of Realtors reported that they experienced a greater number of international clients looking to buy commercial space over the past five years. Economic expansion has slowly chugged along since the downturn,” Yun adds, “but in comparison to the rest of the world, the U.S. remains one of the most attractive and safest bets for investors. There’s little evidence this will change anytime soon.”
Peak Finance Company, Commercial
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