Foreign CRE Investors Weigh Opposing Forces
October 11, 2022 | Jeffrey Steele | Commercial Property Executive
International geopolitical and economic uncertainty has solidified the standing of the U.S. as a port in the storm for foreign investors in commercial real estate. History’s third-highest cross-border volume year came in 2021, when in spite of persistent pandemic-related angst $62 billion was invested in all U.S. property types. But investment pace has slowed greatly in 2022, with rising interest rates adding to debt market volatility.
“Nevertheless, some foreign investors utilize all cash or low-leverage strategies, and therefore have been able to deploy capital despite the volatility,” said Riaz Cassum, capital markets global head of international capital coverage at JLL.
At present, international investors are trying to balance two countervailing forces, said Loryn Arkow, a partner in the real estate practice at Stroock & Stroock & Lavan. On one hand, the U.S. market’s attractiveness as a comparatively safe haven has grown even more appealing at a time of economic uncertainty and an Eastern European war. That has to be weighed against the U.S. dollar’s appreciation vis-a-vis many foreign investors’ currencies, which has made U.S real estate more expensive.
Hottest types
Industrial and multifamily assets appear to be of greatest interest to foreign investors, with life science, self storage and student housing also spurring interest. Cross-border investment interest has also been seen in gateway market Class A office and select suburban office properties.
“Companies are looking to earn their employees’ commute and are looking to reduce square footage but improve the experience,” said Jahn Brodwin, co-leader of the real estate solutions practice, and senior managing director at FTI Consulting. “Thus, a big push to highly amenitized Class A office and upscale suburban locations near where employees live” among foreign institutional investors.
According to the Q2 2022 MSCI US Cross-Border Investment Compendium, cross-border investment volume has averaged 8 percent of total acquisition activity over the past year. That followed 2021’s bifurcated results, which saw cross-border at 6 percent of the total in the year’s first six months, but the second half higher at 10 percent.
