The commercial real estate market in the United States has experienced a significant decline in foreign investment, revealing a changing landscape in the industry. While there was a peak in foreign purchases in 2017, reaching $153 billion in the residential sector, this figure has decreased considerably and currently stands at $53 billion, according to economist Jessica Lautz from the National Association of Realtors.
Traditionally, the percentage of homes owned by foreigners in the United States has been relatively low, ranging between 2% and 3%. In contrast, foreign investors have had a larger stake in the commercial real estate sector, historically representing between 10% and 11% of the ownership. However, there was a decrease to 6% last year, indicating a significant setback in foreign investment, according to Riaz Cassam, Global Head of International Capital at real estate services company JLL.
Stephen Bethel, National Director at Frazier Capital Brokerage & Valuation, has witnessed the impact of this trend firsthand. His Taiwanese banking clients have stopped granting loans for commercial real estate in the United States, while other international clients, including those from Canada, have expressed concerns about the US commercial real estate market. The decline in foreign investment can be attributed to high interest rates and uncertainty about their future trajectory, discouraging both domestic and foreign investors. As a result, the volume of commercial real estate sales in the United States has experienced a drastic 63% decrease.
However, some segments of the commercial real estate market have managed to maintain foreign interest. Alternative sectors such as data centers, life sciences, and student housing continue to attract the attention of large sovereign wealth funds and significant investors from the Middle East. While office buildings are experiencing a slowdown, these non-traditional sectors benefit from sustained foreign investment.
Although the decline in foreign investment presents challenges for the commercial real estate market, it also represents opportunities for new paths of growth. Developers and investors can explore emerging sectors and capitalize on the changing dynamics of foreign interest. By embracing innovative trends, the US commercial real estate market can adapt and thrive, even in the face of changing global economic conditions.