The recent 2016 Olympic Closing Ceremony in Rio concluded with a Carnival themed bash that exploded with Brazilian culture overflowing with colorful costumes, music, lighting and dance; it was a party to end all parties. The stadium was transformed into a microcosm of international flavor as athletes from around the world sambaed the night away, which begs the question who doesn’t love a good party?
Investors of different nations are increasingly joining in on a potentially good party by investing in the US Commercial Real Estate (CRE) market. Foreign investment in the US CRE front may be on the upswing in 2016 (notably in gateway cities) from other areas of the world where investors are looking to offshore capital from potentially less ‘bankable’ foreign CRE investments. Looking back at 2015 (a record year for foreign investment in the US with approximately $70 billion) and using New York City as the baseline pinnacle city for foreign capital direct investment, approximately 20% of the volume traded (or approximately $14.1 billion) was attributed to foreign investment according to CoStar. Nationally in 2015, direct investment by foreign buyers of US CRE was approximately 12% of the total traded volume. After the 2015 banner year however, most experts predicted a normalizing in foreign investment in the US CRE market. As the second half of 2016 approaches however market indicators including a possible slow-down in Chinese GDP coupled with lower oil prices and political uncertainty globally are a juxtaposition against the possibility of lower US interest rates and quantitative easing; some nations therefore may drop out however new faces will surely seize the opportunity to join the party scene in their places.
Despite the consistently more expensive CRE price point associated with US gateway cities such as Los Angeles, Boston, San Francisco and Washington, D.C., foreign buyers continue to make long term investments in assets across these high end markets. According to Bloomberg, in Q12016 a ranking of the largest urban recipients of cross-border commercial real estate investment topped out with New York City (currently at $3.3B) beating out London, Hong Kong and other global cities. Also included in the rankings were other US gateway cities including Los Angeles, Washington, D.C. and Denver all with significant foreign investment in Q12016. Not to be discounted, secondary cities are an attractive option for foreign investors where pricing may be a differentiator in regards to a variety of inventory options beyond multifamily (office, industrial, shopping centers, etc.). So for the short term, there may be a continued rise in CRE foreign investment in the US gateway cities as new players from across Europe, the Middle East and Asia may start joining in on the game as the US plays safe haven for now to new foreign investment (not a new trend in the US).
How the US CRE revelers maintain their competitive stamina however is the question. Deloitte recently released a new perspective on the CRE Industry Outlook where they examine how “a nexus of technology advancements” including Cloud Computing, mobile, social media, analytics and Internet of things are converging to disrupt the CRE industry. Technology is allowing investors of all nations to connect, analyze and execute on specialized platforms faster, driving this opportunity for rapid growth. As a result, Deloitte predicts that for the US CRE market in 2016 “CRE companies will have to be agile and flexible in embracing technological innovations to keep pace with their new competitors and maintain their edge.” With technology as an enabler, the US CRE party may actually turn out to be an ‘all-nighter’.