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Foreign Investment - Outlook

Mega-deals helped spur foreign investment in U.S. commercial real estate to a near record level in 2018, and many are watching to see if that momentum can carry over into 2019.

According to research firm Real Capital Analytics (RCA), cross-border acquisitions of U.S. commercial real estate surged to $94.9 billion last year, jumping 73percent over the $55.3 billion reported in 2017 and nearly on par with the $100 billion recorded in 2015. That spike in volume shows continued confidence in the U.S. real estate market.

Investors are attracted to the stability and growth factors surrounding the U.S. economy, the ability for predictable cash flow and the strength of property fundamentals, notes Chris Ludeman, global president of capital markets at real estate services firm CBRE. “It also underscores the belief that the U.S. is not expected to experience any sort of economic downturn in the next 12 to 24 months, whereas the flow of capital in other parts of the world [is] a little more tenuous in terms of economic output,” he says.

Singapore was a major player in 2018, with $4.2 billion in acquisitions, which put it third behind Canada and France for cross-border acquisitions, notes Coleman. “There were some large-scale deals that Singapore entities purchased, and we certainly expect them to remain active in the U.S. going forward,” she says. Singaporean investors are looking to the U.S. for diversification, as well as the ability to capture higher yields in a relatively stable environment.

Foreign capital continues to move beyond core gateway markets and into other property types aside from office and hotels, such as industrial, multifamily and alternatives that include medical office, healthcare and data centers among others. One of the biggest potential challenges ahead for international investment activity are rising interest rates that would increase hedging costs. However, interest rates have moderated in 2019. The 10-year Treasury, which was up well over 3 percent in 2018, has settled back around 2.7percent in recent weeks. In addition, the relatively flat yield curve between the 2-year and 10-year Treasury has widened slightly, easing concerns about a potential inverted yield curve.

“We have yet to see any caution exhibited by global capital coming into the U.S. for reasons other than hedging costs,” says Ludeman. “The sound economic footing that the U.S. is in relative to other economies around the world continues to be a positive.   So, I think we’re in good shape for 2019.”