• Fri. Feb 23rd, 2024

    Foreign Investment in US Commercial Real Estate Declines While Alternative Sectors Thrive

    BySharna Bass

    Feb 9, 2024
    Foreign Investment in US Commercial Real Estate Declines While Alternative Sectors Thrive

    Foreign investment in the US commercial real estate market has experienced a significant decline, revealing a shifting landscape in the industry. The peak of foreign purchases was observed in 2017, amounting to $153 billion on the residential side. However, this figure has now dwindled to $53 billion, as reported by economist Jessica Lautz from the National Association of Realtors.

    Traditionally, the percentage of homes owned by non-Americans in the US has remained relatively small, ranging between 2% and 3%. In contrast, foreign investors have had a larger stake in the commercial real estate sector, historically accounting for 10% to 11% of ownership. However, last year saw a decrease to 6%, indicating a significant pullback in foreign investment, according to Riaz Cassum, the global head of international capital for real estate services company JLL.

    Stephen Bethel, the national director of Frazier Capital Brokerage & Valuation, has observed the impact firsthand. His Taiwanese banking clients have ceased making commercial real estate loans in the US, while other international clients, including those from Canada, have expressed concerns about US commercial real estate. The decline in foreign investment can be attributed to high interest rates and uncertainty regarding their future trajectory, discouraging both domestic and foreign investors. Consequently, commercial real estate sales volume in the US has seen a drastic 63% decrease.

    However, certain segments of the commercial real estate market have managed to maintain foreign interest. Alternative sectors, such as data centers, life sciences, and student housing, continue to attract attention from large sovereign wealth funds and major investors in the Middle East. While office buildings experience a slow burn, these non-traditional real estate sectors benefit from sustained foreign investment.

    Although the decline in foreign investment presents challenges to the commercial real estate market, it also signifies opportunities for new avenues of growth. Developers and investors can explore emerging sectors and capitalize on the shifting dynamics of foreign interest. By embracing innovative trends, the US commercial real estate market can adapt and thrive, even in the face of changing global economic conditions.

    Foreign Investment in US Commercial Real Estate: FAQ Section

    1. What was the peak of foreign purchases in the US residential real estate market?
    The peak of foreign purchases in the US residential real estate market was observed in 2017, amounting to $153 billion.

    2. What is the current level of foreign purchases in the US residential real estate market?
    The current level of foreign purchases in the US residential real estate market has declined to $53 billion.

    3. What is the typical percentage of homes owned by non-Americans in the US?
    Traditionally, the percentage of homes owned by non-Americans in the US has remained relatively small, ranging between 2% and 3%.

    4. What percentage of ownership did foreign investors historically account for in the commercial real estate sector?
    Foreign investors historically accounted for 10% to 11% of ownership in the commercial real estate sector.

    5. What is the current percentage of ownership by foreign investors in the commercial real estate sector?
    The current percentage of ownership by foreign investors in the commercial real estate sector has decreased to 6%.

    6. What are the factors contributing to the decline in foreign investment?
    High interest rates and uncertainty regarding future trajectory are the main factors contributing to the decline in foreign investment.

    7. Which alternative sectors of the commercial real estate market have maintained foreign interest?
    Alternative sectors such as data centers, life sciences, and student housing have managed to maintain foreign interest.

    8. Who are the major investors in these non-traditional real estate sectors?
    Large sovereign wealth funds and major investors from the Middle East are showing continued interest in these non-traditional real estate sectors.

    9. How much has the commercial real estate sales volume in the US decreased?
    The commercial real estate sales volume in the US has decreased by 63%.

    10. What opportunities does the decline in foreign investment present to the market?
    The decline in foreign investment presents opportunities for developers and investors to explore emerging sectors and capitalize on the shifting dynamics of foreign interest.

    For more information on the US commercial real estate market, you can visit the National Association of Realtors – Commercial.