Cross-Border Investment Nearly Broke Records In Q4

Cross border investment in the US commercial property markets in Q4 2021 delivered the second strongest quarter on record, at $33 billion. Those dollars were mostly directed toward the industrial and multifamily sectors, which together accounted for two-thirds of foreign investment activity.

International investors have bought about $60 billion in US real estate over the last ten years on average, according to John Chang, Vice President and senior director of research services at Marcus & Millichap. Last year, the total was about $70 billion. The most active year was in 2016, which clocked in at around $100 billion.

Still, Chang says, foreign investment comprises just 10.3% of the total CRE dollar volume on average. Last year, the number was 9.1%.

Canada led foreign investment in US real estate for nine of the last 10 years. The exception was 2016, when China took the top spot. Canada is typically followed by Singapore, China, Germany, and South Korea. And while foreign investors also tend to favor gateway markets, led by New York City, San Francisco and Los Angeles, Canadian investors tend to be more willing to place capital into secondary or even tertiary markets.

“Foreign investors are often driven by different motivations than their US counterparts,” Chang says. “Sometimes they are focused on yields like their domestic competition. But remember why their cost of capital and the native yields they’re used to may be quite different than in the US.”  And in other instances, foreign investors may be more focused on the preservation of  capital and thus more willing to pay a higher price for an asset to pit their dollars into a safe place.

While direct foreign investment is easily measured, “we cannot track indirect foreign investment, where an international capital source puts money into a US fund or goes through another intermediary to buy US real estate,” Chang says.