Foreign Demand for U.S. Commercial Property Continues to Climb
The United States is experiencing a surge in foreign investment – with warehouse space and rental apartments leading the charge –as companies worldwide recognize how strong commercial real estate markets have been during this economic recovery.
Despite the global pandemic, 2022 is on track to become a landmark year for foreign investment in U.S. commercial real estate. According to a new report from JLL, overseas investors spent $70.8 billion on U.S. commercial real estate in 2021, the highest total since the $94.6 billion invested in 2018. The majority of that money went into office buildings, hotels, and warehouses, as investors bet on the continued recovery of the U.S. economy.
The surge in activity was driven partly by the lifting of travel restrictions and the reopening of borders, which allowed investors to swoop back in and resume their due diligence in person.
The deluge of money helped drive up prices for office buildings, warehouses, and other real estate sectors, as foreign buyers sought to capitalize on the U.S.’s relatively strong economic performance amid the pandemic-induced downturn.
The Changing Face of Foreign Investors
Canada, the U.K., South Korea, and Singapore have been leading the most recent wave of investment and were responsible for a combined $23 billion of the $57 billion that flowed into U.S. commercial property last year, according to data from Real Capital Analytics. The influx of cash is expected to continue this year as the U.S. economy continues to outperform most of the world.
Chinese investment in U.S. real estate has declined recently, but the pandemic has further cooled the Chinese appetite for American property.
According to Real Capital, Chinese investors purchased $534 million worth of property in 2021, a far cry from the record $19.1 billion they spent in 2016. The reasons for the decline are political and financial pressure from Beijing to bring money back home and the increased difficulty of moving money out of China. The pandemic has only made it harder for Chinese investors to buy American property, as travel restrictions and economic uncertainty have made it a riskier proposition. As a result, Chinese investment in U.S. real estate will likely remain at low levels.
Investors Turn Their Attention to Super Cities
The pandemic has changed the way that foreign investors view U.S. real estate. In the past, overseas money primarily flowed into office buildings and hotels in major cities such as New York, San Francisco, and Chicago. But in 2021, overseas money largely followed U.S. investors into hot new sectors such as warehouses, rental apartments, and specialized office buildings for pharmaceutical businesses — embracing high-growth markets like Dallas, Charlotte, Denver, Nashville, and Austin.
The shift reflects a fundamental change in how global capital flows into the United States. Investors are betting that the pandemic has profoundly changed American lifestyles and business patterns, favoring sprawling suburbs, overcrowded urban centers, and e-commerce over brick-and-mortar retailing.
These so-called “super cities” are characterized by strong economic growth, low tax rates, and a highly educated workforce, which makes them even more attractive to businesses and investors. As a result of this trend, we will likely see more investment dollars flow into these markets in the coming years. This may likely lead to increased economic growth and job creation in these regions, increasing the appeal of these regions.
Trending Outside the Box
The pandemic also resulted in a pharmaceutical industry boom as companies scrambled to develop vaccines and treatments for COVID-19. As a result, specialized office space for pharma businesses has become one of the hottest sectors in the U.S. real estate market.
Despite the challenges posed by the pandemic, foreign investors remain bullish on the U.S. real estate market. According to overseas investors and real estate brokers, many investors expect to maintain last year’s investment levels or even increase their buying in 2022.
Their appetite remains strong for logistics and rental apartments and the highest-quality office buildings that have seen the most leasing during the pandemic. These investors believe the U.S. real estate market offers good value compared to other global markets. As a result, we can expect to see continued interest from foreign investors.
Commercial real estate can be a great way to grow your wealth.
Today’s market remains hot, with industrial and rental properties leading demand. Thanks to the growing influx of foreign investors and the unwavering popularity of online shopping, warehouses and other industrial buildings are a hot commodity in emerging markets across the U.S.
With rents continuing to rise and property values continuing to skyrocket, now is the time to consider getting into the commercial real estate market or expanding your existing portfolio with an industrial property.
Extensia Financial is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate.
Our lending experts have a wealth of experience in the Commercial and Multifamily sector and can guide you through each stage of the process.
Our loans range in size from $1M to $30M and generally have terms of five to ten years with amortization of up to 30 years.