For the first time in years, foreign investors are selling off more U.S. real estate than they are buying, data from Real Capital Analytics now show, signaling that the robust times for U.S. commercial property market may soon come to an end.
Foreign investors sold off $21.4 billion in property in H1 2019, while only purchasing $21.3 billion during that same quarter—the first such deficit since 2012.
But Q2 data looks even more grim, with foreign direct acquisition falling 37 percent year over year.
This “pullback” in commercial real estate isn’t the cause of one group of investors dropping out, but there were some notable movements. Real estate investments from China dropped 74 percent, while investments from Singapore dipped 55 percent this year over last. Investors from Canada and Germany, however, increased their purchases year over year in 2019. Middle Eastern investors increased real estate purchases as well, particularly in the apartment sector.
Real estate prices are high right now and the strength of the dollar makes U.S. properties even more pricey against their own weaker currency. “The yield opportunity is not what it was a few years ago,” Jim Costello, senior vice president at Real Capital Analytics said, as cited by CNBC.
Investors, Costello said, are more likely to sit on their cash-producing assets instead of dumping them due to the volatility of interest rates and exchange rates. Investors would then have to reinvest in another asset with even more unknowns, resulting in a case of “The Devil You Know” syndrome.
But not all commercial deals are created equal. Retail property, as should be no surprise, was hotter in 2018 than it has been so far this year. But office space and apartment buildings are the go-to asset of choice. Also hotter in 2018 were commercial real estate markets in Los Angeles and Washington D.C. Instead, investors are showing preference in 2019 to markets in NYC, Boston, Seattle, and Las Vegas.
Real estate is the largest asset class in the world, estimated at US$1 trillion, according to Andrea Jang, head of growth for Americas for JLL Spark. Related: Security Breach Reveals Crypto Mining In Ukrainian Nuclear Plant
Worries are that the China trade war will further dent the real estate markets, after US President Donald Trump levied a 25 percent tariff on imported building material.
“We’re in a long-term, low-interest-rate, high-demand environment,” Mark Rose, CEO of full-service commercial real estate company Avison Young told Forbes in an interview in mid-August, speaking of the commercial real estate industry in the U.S.
But the retail aspect of the commercial real estate industry may be less successful than other commercial real estate sectors, given the e-commerce boom, Rose commented, adding that the apartment sector looks particularly inviting.
“With three billion more people expected on the planet in the next 50 years, we have a major driver of demand/need. We might need to build a million square feet of housing per day to match population growth,” Rose said.
By Julianne Geiger for SafeHaven.com
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