Foreign Investors Pile into US Commercial Real-Estate Bubble
Foreign Investors Pile into US Commercial Real-Estate Bubble by Wolf Richter
With impeccable timing, after a blistering 7-year price boom.
2016 might later be called the peak year in terms of commercial real estate, or even the post-peak year, depending on the metric. Overall office sales in 2016 fell 7% from 2015, to $140.5 billion, according to JLL research cited by CommercialCafé, a sister company Yardi Matrix. And leasing activity was hampered by office tenants that were “reluctant to make any major moves pending the conclusion of the presidential election.”
But graciously, foreign investors jumped in with both feet to help out. The report by CommercialCafé:
[T]he market has become a haven for offshore investors, who are pumping record amounts of capital into US office assets, especially in primary urban cores. According to JLL research, foreign office investment surpassed $20 billion in 2016, accounting for 16% of the overall acquisition volume.And while, historically, Canadians have been the most active foreign players on the market, Asian and German investors are now stealing the spotlight.
Of the 50 largest office deals that closed in the US in 2016 – the trophies that get global attention – offshore buyers accounted for 43%! And those from Asia alone accounted for 16%:
- Mixed foreign and US: 9 deals for $7.1 billion, 19% of total
- Asian: 8 deals for $6.0 billion, 16% of total
- European: 5 deals for $2.3 billion, 6% of total
- Canadian: 1 deal for $914 million, 2% of total
Notable purchases by foreign entities included China Life’s $1.64 billion purchase of 1285 Avenue of the Americas in New York, in a joint venture with RXR Realty (New York); and Hong Kong Monetary Authority’s $1.15 billion acquisition of 1095 Avenue of the Americas.
So how is their market timing?
The Greenstreet Property Price Index in February was flat for the fourth month in a row. You have to go back to the early 2000s to find a flat spot this long. During the Financial Crisis it peaked, and without dilly-dallying around, it plunged, and then, fired up with the Fed’s free money, it soared. But this time, there is no crisis. It just hit the ceiling.