Outbound Capital Tops Amount Coming Into the US for First Time in Four Years
Foreign investment in U.S. commercial real estate declined so much during the first half of the year that more of that money left the country than came in for the first time in four years.
Capital investments in commercial property flowing into the United States totaled $17 billion between Jan. 1 and June 30, a decline of 48% from the same time in 2018, CBRE’s report of U.S. inbound and outbound capital found. CBRE said about half the drop-off can be attributed to a decline in mergers and acquisitions, which hit record levels in 2018, in the first half of this year.
“With the longest global economic expansion on record, international investors face an increasingly complex calculus in identifying cost-effective opportunities for potential downturn protection, slowing the pace of cross-border capital flows to and from the U.S.,” CBRE said in a preview of the full report expected to be released Tuesday.
In comparison, U.S. investment in properties abroad totaled $18.6 billion in the first half of 2019, an 18% decline from the same time last year, according to the CBRE report.
“Given the less-pronounced pullback in outbound capital, overseas outflows by U.S. investors outpaced U.S. inflows from foreign investors, reversing the trend of the past four years,” CBRE said in the report preview.
The No. 1 destination of U.S. capital was the United Kingdom, where U.S. investments in property jumped to $4.8 billion in the first half of 2019, a 26.1% increase over the same time in 2018, according to CBRE.
While a slowdown in company-level acquisitions played a role in the drop in the amount of foreign capital flowing into the U.S. property market, other factors played a role.
Earlier this year AFIRE, an association of global investors focused on U.S. institutional real estate, asked its members about what they perceived to be the greatest risk of cross-border investing. The respondents listed currency fluctuations and geopolitical uncertainty among their concerns, and 78% agreed that the tariff disputes and trade wars between the United States and other countries would affect cross-border investments this year.
As the AFIRE survey respondents predicted, trade tensions between the U.S. and China impacted the share of capital inflow from the Asia-Pacific region. APAC’s total capital inflow to the U.S. property market dropped to 18% of overall volume in the first half of 2019, down from 32% in the same time the year before.
“Inbound volume from APAC dropped most notably, particularly from China and Singapore, which had been among the top-five capital sources in recent years,” the CBRE report said. “Meanwhile, regional share for the Middle East increased nearly fivefold to 24% from less than 5%.”
The most money coming into U.S. commercial real estate came from Canada, which increased 31.3% to $5.3 billion in the first half of the year, according to the CBRE capital flow report. Israel was second with $1.4 billion and Germany third with $1.1 billion, the CBRE report says.
One bright spot has materialized this year in terms of foreign investment in U.S. commercial real estate. Cross-border capital being used to acquire net-lease properties increased to $3.9 billion in the second quarter, a 78.4% jump compared with the same time in 2018, according to CBRE’s U.S. Net-Lease Investment Report.
“The global search for yield and portfolio diversification is attracting international investors to the U.S. net-lease market,” that CBRE report says. Canada, Germany and South Korea were the top country sources of capital invested in net-lease properties, which means the tenant covers most of the property’s operating expense.
“Foreign investors’ appetite for U.S. net-lease properties has increased more than any other investor group,” said Will Pike, vice chairman of Net Lease Properties for Capital Markets, said a statement. “This is further evidence that global capital flows prioritize the risk adjusted returns of the net lease sector and will continue to invest in the asset class.”
International buyers accounted for nearly 19% of the second quarter’s net-lease transaction volume, their highest level since 2015, according to CBRE.
The top cities for foreign capital investment in net-lease properties were New York City, San Francisco, Miami, Houston, Los Angeles and Chicago, with Related Cos. and Allianz Real Estate of America’s $2.2 billion acquisition of the office condominium at 30 Hudson Yards in New York City being the single largest deal, according to the CBRE net lease report.