JLL: Foreign CRE Investment Remains Strong

Michael Tucker mtucker@mba.org

October 18, 2017


U.S. commercial real estate remains popular among offshore investors, attracting nearly $20 billion in first-half 2017, said JLL, Chicago.

Though the U.S. remains the world's leading recipient of cross-border capital, foreign investment has slowed from last year's $55.1 billion annual pace, JLL noted.

JLL Americas Research Director Sean Coghlan said U.S. commercial real estate offers several attractions to foreign investors, including elevated market sentiment and liquidity, an extensive range of assets and an active, engaged and diverse investor pool.

"For some investors, this is combined with limited investment options in their domestic markets," Coghlan said. "Uncertainty over the economic climate and prospects in the European Union--especially as Brexit plays out--is another factor. At the same time, foreign pension and sovereign wealth funds continue to increase their allocations to real estate, while the relaxation of restrictions on outbound investment by some countries has helped stimulate foreign capital flows."

Coghlan noted sources of foreign capital continue to shift. "Historically, Canadians have been the most active foreign investors in U.S. real estate, but now investors from Germany and Asia-Pacific have started to make strides," he said.

Canadian capital remain the single-largest source of foreign CRE investment, accounting for 30 percent of year-to-date foreign investor activity, but nearly half the offshore acquisitions in the first half originated in Asian countries, reflecting their "ongoing appetite" for U.S. real estate, Coghlan said. "In addition, seven of the top 10 foreign buyers were based in Asia," he said. "The office sector, and in particular coastal gateway markets, continue to be their main targets."

After the office sector, multifamily saw the next-biggest inflow of overseas capital, as a broader subset of foreign sovereign wealth and pension funds increased their exposures to the space, JLL reported.

"While some overseas investors are focused on suburban investment strategies due to current urban development levels and pricing, others are seeking to align U.S. multifamily with office exposure from a market and sub-market perspective," Coghlan said. "We will see more transactions from these groups, likely at scale, in non-conventional structures and with strong domestic sponsors. However, selectivity will remain the norm."

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