By Evan Gentry
Despite fears of trade wars and increased protectionism, foreign investment in the United States remains robust. In fact, the U.S. continues to be the single largest recipient of foreign direct investment (FDI) in the world: more than $450 billion was pumped into the U.S. economy from other countries in 2016, according to the Bureau of Economic Analysis at the Department of Commerce.
A significant amount of this capital is flowing to commercial real estate (CRE), which continues to be the sector of choice for many foreign investors. International investors have purchased more than $365 billion in U.S. CRE since 2010, with the majority of capital flowing to the largest metropolitan regions. Manhattan alone represented nearly a fifth of all foreign investment in U.S. CRE in 2017, greater than the next three markets combined.
These inflows to the sector may only be the beginning. A growing U.S. economy should continue to drive more demand for commercial property.
Why is there so much interest in U.S. commercial real estate?
Real estate has long played an integral role in global investors’ portfolios, but recently U.S. CRE has separated itself from other subsectors within the class. From a top-down perspective, the U.S. market, which has largely recovered from the financial crisis and is fueled by strong job creation and business expansion, is viewed as stable. The market compares favorably to regions such as Europe, where the economic turmoil caused by Brexit has turned off many would-be investors.
From a micro perspective, U.S. CRE offers the potential for higher returns relative to the modest prime capitalization rates in London and parts of Asia. At the same time, the U.S. market is renowned for its scale and liquidity, providing foreign investors the flexibility to exit their investments if they decide to invest their capital elsewhere.