Economy Watch: Overseas Investment in US CRE Still Strong

Following a record 2015, foreign investment in U.S. real estate this year is on track to remain a significant slice of total investment volume.
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Direct foreign investment in U.S. commercial real estate totaled 17 percent of all real estate investment by dollar volume in 2015, making that a record year. This year is on track to see a lower share of overseas investment in domestic CRE—mainly due to the impact of the stronger dollar—but even so, foreign investors still represent a significant slice of the pie, according to a recent report by Marcus & Millichap.

The reasons for that include global financial market volatility, weak foreign economies, low alternative investment yields and other factors creating uncertainty, which reinforce the advantages of U.S. commercial real estate, the report says. Many foreign investors are still looking for capital preservation and asset stability on American shores, rather than yield.

In any case, historically, international investment in the U.S. has averaged 9 percent of total investment. This year might not reach the highs of 2015, Marcus & Millchap said, but international investors still accounted for about 11 percent of the dollar volume of all U.S. properties sold in the first half of 2016.

Moreover, those investors generally fit a certain profile. Foreign investors traditionally favor gateway cities, partly because of the brand value of well-known metros (although some international buyers, particularly barely-foreign Canadians, venture to a wider range of markets). Last year, 43 percent of foreign capital invested in CRE was concentrated in five major markets: New York City, Los Angeles, Atlanta, Chicago and Dallas. So far this year, San Francisco and Phoenix have appeared in the top five, pushing out Atlanta and Dallas.