By Paul Jackson
Global investors today face goods news and bad news.
On the positive front, the COVID-19 lockdown that impacted much of the world in 2020 is mostly in the rear-view mirror. Many countries are returning to business as usual (with China, among major economic players, the possible exception).
However, the “flip side” includes economic headwinds (inflation), geopolitical conflict (Russia’s invasion of Ukraine, and the resulting “saber-rattling” by other countries) and stymied worldwide movement of goods (supply chain disruptions). While these factors continue to create challenges for investors, they have also increased the attractiveness of U.S. commercial real estate as a “safe haven” for capital. This phenomenon is evident in current transaction activity—despite America’s own economic, political, and social challenges.
A recent report noted that cross-border investment volume into the U.S. was $6.5 billion in the second quarter of 2022, a 16 percent year-over-year increase. Earlier this year, a survey conducted by the Association of Foreign Investors in Real Estate (AFIRE) reported that 76 percent of respondents planned a net increase in U.S. investments during 2022, while 82 percent indicated they plan to boost their U.S. commercial real estate holdings within the next decade.
Assets and locales
Commercial real estate is a very broad industry. As such, two issues to consider when discussing foreign investment in U.S. real estate are:
- Different asset classes are in different phases of their real estate cycles.
- Geographic markets have different fundamentals and resulting demand.
Given these factors, here’s where foreign capital is primarily being directed, and why.
Multifamily and industrial assets
Multifamily remains an attractive asset class for domestic and international investors because, quite simply, people need a place to live. Fundamentals impacting the U.S. apartment market include high home prices and rising mortgage rates. These factors, coupled with a still-scarce supply of single-family homes, keeps would-be buyers on the sidelines as renters.
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