Overseas Investors See US as Top Safe Haven
Foreign investment activity in the US is expected to remain active through 2020 as a result of the strong economy and dollar.
“Overseas investors are another bucket of capital that layer into the pool. Interest rates overseas are negative in a lot of the primary countries, and investors are yield starved,” Mike Longo, SVP at CBRE, tells GlobeSt.com. “The US is perceived to be the number one safe haven globally and a place with more yield potential. With the influx of global capital and the US dollar as strong as it is, capital is really attractive to real estate as a safe bet that offers some yield premium. I think that you will continue to see that. As a result, we will continue to keep compression on cap rates and the best assets. Global capital is generally interested in the best markets and the most stable instruments.”
The US commercial real estate market in particular is an attractive option for yield-hungry foreign capital, particularly staked up against current interest global interest rates. “If you are a German trader with a pension fund that you are paying a point on, for example, that is still a spread above the Euro treasury,” Longo says. “If you combine real estate and you can clip a 4% or 5% coupon, that is a really appealing alternative.”
Most of this investment capital is coming from Germany in Europe, Singapore and South Korea in Asia and Canada. These investors are different than the Chinese capital that stormed the US markets a few years ago. “Those investors tend to be safety and yield focused,” says Longo. “We saw a run of Chinese capital a few years ago that made a lot of headline news. It is very well reported that China has reported from US investment due to the regulations that they have had. Chinese capital was different in that it was upside focused and it would take on a little more risk. That group of capital is less active today, and most of the international capital that we see is safety focused.”
Looking into next year, Longo expects to see similar activity from these investors. “I don’t see a decline in any global interest on the US markets,” he says.