Foreign Investment in U.S. Commercial Real Estate Remains Strong

Mike Sorohan msorohan@mba.org

July 06, 2018

Nearly one-fifth of commercial real estate realtors closed a sale with an international client in 2017, the National Association of Realtors reported.

The group's 2018 Commercial Real Estate International Business Trends report also noted 35 percent of commercial realtors said they experienced an increase in international clients over the past five years.  It said most realtors who specialize in commercial real estate reside in smaller commercial markets where the typical deal is less than $2.5 million.

"The profile of smaller commercial markets is continuing to rise as many foreign investors are attracted to smaller-sized properties in secondary and tertiary markets, bringing realtors confidence that increased sales and leasing activity will continue to occur in 2018," said NAR Chief Economist Lawrence Yun. "Since 2016, world economies have regained their footing and have pressed toward higher ground. Global economic output increased in 2017, and commercial real estate continues to be a healthy investment for global investors."

The report said of the 59 percent of realtors who indicated they completed a commercial real estate transaction last year (69 percent in 2016), 18 percent reported closing a deal for an international client (20 percent in 2016). Among survey respondents who closed an international transaction, 46 percent closed a buyer-side transaction, 13 percent a seller-side transaction and the remainder closed both types of transactions.

More than 60 percent of buyer-side sales were transactions with foreign buyers who primarily reside abroad. Most seller-side transactions (57 percent) were of properties sold by clients who were temporarily residing in the U.S. on non-immigrant visas.

Nineteen percent of realtors said they completed a lease agreement on behalf of a foreign client, down from 22 percent in 2016. The median gross lease value for international lease transactions was $200,000 ($105,000 in 2016) with most space typically under 2,500 square feet.

Top countries of origin for buyers were China (20 percent), Mexico (11 percent), Canada (8 percent) and the United Kingdom (6 percent), while sellers were typically from Mexico (20 percent), China (15 percent), and Brazil and Israel (both at 10 percent).

The report said Florida and Texas ranked highest where foreigners purchased and sold commercial property last year, with California third as most popular buyer and seller destination.

International commercial buyer and seller transactions typically tend to be at the higher end of the market. Last year, the median international buyer-side transaction was $975,000 and a median seller-side transaction was $1 million, while the median commercial transaction was $625,000.

The survey also found foreign buyers of commercial property typically bring more cash to the table than those purchasing residential real estate. Seventy percent of international transactions were closed with cash, while the 2017 residential survey found that half of buyers paid in cash. For those not using all cash, 25 percent of commercial deals involved debt financing from U.S. sources. A majority of buyers purchased commercial space for rental property (39 percent) or for business investment purposes (34 percent).

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