7 May 2014
Global capital still seeks top-tier cities and trophy buildings, but investors are now looking for new opportunities–and high returns–from Boston to Phoenix.
Quick. Name the biggest foreign investor in U.S. commercial real estate in 2013. Was it: a.) Australia; b.) Canada; or c.) China?
If you guessed China, you’d be wrong—by a factor of three. Last year, Canadian investors pumped about $12 billion into 458 properties in U.S. market, nearly one-third of all foreign investment in commercial real estate. The Chinese added another $3 billion, and the Australians weren’t far behind, at $2.6 billion.
Led by Canada, foreign investors pour billions into commercial real estate in cities across America.
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In all, foreign investors poured more than $38.7 billion into commercial real estate in 2013, allowing the U.S. to keep its title as the No. 1 destination for foreign capital. That’s a 40 percent increase over 2012, and the upward trend shows no sign of slowing this year.
"Every year, we break a new record for foreign investment into U.S. commercial real estate," said
Steve Collins, international director at JLL. "International capital is plentiful, placing money into markets across the spectrum."
About 40 percent of all foreign investment last year flowed into the three primary real estate markets of Manhattan, Los Angeles and Chicago. But now the secondary markets are getting in on the game, Collins says. Thanks to their booming technology and energy sectors, Houston, Dallas, Boston and Seattle attracted a combined $5.6 billion in foreign investment in 159 properties last year.
Foreign investors continue to be drawn to the safety and quality of U.S. properties, though in different ways. Canadian investors, for example, are focused on developing partnerships with REITs and capitalizing on multifamily properties, particularly in emerging Sunbelt markets such as Tampa, Raleigh and Phoenix.
Toronto-based Brookfield Asset Management topped all Canadian investors last year with more than $4 billion in U.S. investments, including office properties, garden-style apartments and industrial warehouses in Dallas, Houston, Los Angeles and Washington, D.C.
Australian investors, who are expected to become an even bigger player in the U.S. market over the next several years, are securing partnerships to directly own assets, especially in the retail sector. Australian pension funds spent $1 billion last year in retail developments from California and Nevada to Virginia, West Virginia and Pennsylvania.
Even the Chinese, who tend to focus on trophy and Class A office assets in the top-tier markets, have begun to focus on residential development in those cities.
And they’re not the only ones. New sources of capital are eyeing the U.S. with bigger appetites than ever before, according to JLL’s
International Capital Sources report. Investors from Germany, Singapore and Israel each invested more than $2 billion in the U.S. last year, with Norway, Switzerland and South Korea each adding more than $1 billion.
"The U.S. is the most transparent real estate market in the world and will continue to attract a wide range of investors, from pension funds to so-called Ultra-High-Net-Worth Individuals," said Steve Hason, newly elected chairman of the Association of Foreign Investors in Real Estate. "That ranges from "predictable core investments in gateway markets to potentially higher-yielding investments in secondary markets," he said.
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