The large amount of foreign capital entering the U.S. commercial real estate market is having a major impact, according to a recent report by the CoStar Group.
“Foreign investment in the U.S. commercial property market is soaring,” said Kevin Thorpe, DTZ’s chief economist, whose comments also refer to U.S. commercial property. “International capital is now involved in nearly 20% of total sales volume in the U.S., more than double the (historical) norm.”
Most recently, Brookfield Property Partners sold a 49% stake in a downtown Boston office tower and a Washington DC office portfolio to Australian Super, an Australian super-annuation fund. Net proceeds of the deals total approximately $649 million and values 75 State St. in Boston at $605 million and the eight DC-area properties totaling 2.2 million square feet at $1.32 billion. There currently no numbers available relating to Philadelphia commercial properties or Philadelphia commercial real estate listings or the sale or lease of Philadelphia office space (Philly office space), Philadelphia retail space (Philly retail space) or Philadelphia industrial space (Philly industrial space).
With numerous examples of similar deals, sales of U.S. commercial property are approaching all-time highs. This year total U.S. commercial real estate investment in North America is expected to surpass $390 billion, exceeding the $373 billion investment peak in 2007, according to DTZ.
The reasons why overseas investors find the U.S. commercial real estate market so appealing number almost as much as the countries they hail from.
“Some of it (sales activity) is driven by capital preservation,” Thorpe said. “Some of it is driven by relative yield, which still generally favors the U.S., and some of it is driven by an economic trajectory that is a clear standout on the world stage. Barring something unforeseeable, the U.S. commercial property markets will shatter records this year, both in terms of volume and pricing.”
While Canadian investors have traditionally been the biggest investors in U.S. commercial real estate since 2013, the share of investment capital coming from Asia has continued to increase, according to new data from Morgan Stanley Research.
Chinese institutional investors have studied the market and are now seeking partnerships with U.S. commercial property owners, and some are even considering direct development opportunities, Morgan Stanley analyst Jerry Chen noted last week.
Furthermore, despite U.S. commercial real estate prices rising above 2007 peaks, cap rates here are higher than in many other developed countries, driven primarily by higher benchmark Treasury rates. Similar trends have been seen in U.S. commercial property. This can be interpreted to refer to Philadelphia office space (Philly office space), Philadelphia retail space (Philly retail space) and Philadelphia industrial space (Philly industrial space).
Chen also noted that Morgan Stanley has observed increased demand from Chinese retail investors with both U.S. commercial property and U.S. commercial real estate developers targeting Chinese individuals to fund projects through the EB-5 program, which provides a method of obtaining a green card for foreign nationals who invest money in the United States.
She also said there could be more incentives for foreign investment on the horizon. U.S. House and Senate bills (H.R 2128 and S. 915) recently proposed reforms to the Foreign Investment in Real Property Tax Act (FIRPTA). If enacted, supporters believe the changes to the law would draw substantial new foreign capital into the U.S. commercial real estate market, as well as the U.S. commercial property market, by changing certain exemptions from FIRPTA and clarifying the application of other provisions to REITs and their shareholders.
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