by Dan Rafter
It should come as no surprise to anyone working in the business today that foreign investors look at commercial real estate as one of the smartest places for their dollars.
There is plenty of uncertainty across the globe. But commercial properties in the United States, because they are so stable these days, offer overseas investors a safe harbor for their capital.
Marcus & Millichap recently released its third quarter foreign investment report, and found that though overseas investment in U.S. commercial real estate has eased from peak levels, it remains elevated when compared to historical norms.
One of the more interesting facts from the report? While it’s the large, high-profile investments that garner the most press, the majority of acquisitions that foreign investors make are of smaller assets that these buyers purchase through funds and domestic intermediaries. These acquisitions don’t generate headlines, but they are providing a solid boost to the country’s commercial real estate market.
Marcus & Millichap reported that direct foreign investments in U.S. commercial real estate accounted for 17 percent of the market’s total dollar volume in 2015. That came out to foreign investments of more than $90 billion last year.
Marcus & Millichap says that the pace of foreign investments in commercial properties here is slowing this year, but is still significant. According to the company’s report, international investors still accounted for about 11 percent of the dollar volume of all U.S. commercial properties sold in the first half of 2016.
When international investors do put their money into commercial real estate, they concentrate on certain key markets. Marcus & Millichap reported that 43 percent of last year’s foreign capital invested in commercial real estate was concentrated in just five markets: New York City, Los Angeles, Atlanta, Chicago and Dallas. For the first half of 2016, San Francisco and Phoenix made that list, pushing out Dallas and Atlanta.
Foreign investors prefer office and hotel properties, with Marcus & Millichap reporting that these asset classes made up 72 percent of the total foreign dollar volume invested last year.