The Azucena Take: The Importance of Foreign Investors and the American Commercial Real Estate Market

2021 was a good year for the commercial real estate market. The sale of commercial real estate was up by 35% in when compared to 2019. Helping to make 2021 one of the best years was the role of foreign investment in the American commercial real estate market. Foreign investors play a major role in fueling the American commercial real estate market. Thus it helps to understand it all. 

Before going into details, the data presented is based on direct investment by a foreign individual or firm. That means the information presented is based on direct investments. It's not possible to find accurate data about the investments made through an intermediary or a domestic institution. One could speculate that those working through a third party are also greatly contributing to the market. 

On average; foreign investors buy $60 billion in assets ayear with 2021 seeing record sales of $70 billion. So where is the source of all this investment? In the last 10 years, Canada has been the biggest source of foreign investment in the American commercial real estate market. A quick breakdown of the top source of foreign investment are as followed: 

  • Canada by 32%

  • Singapore by 10%

  • China by 8%

  • Germany by 7%

  • South Korea by 5%

Where the investor is from tends to also play a major factor in where they invest. Most foreign investors prefer major metropolitans and gateway cities with the San Francisco Bay Area and the greater Los Angeles area taking the top spot. The biggest exception to this trend has been Canadian investors as they are more likely to invest in secondary and tertiary markets. 

The biggest change brought on in the last 12 years has been the types of property that attract investors. From 2010 to 2014, Office property was the most traded type among foreign investors. By 2015; it started to drop with the office market dominating in only 3 out of the 7 years. In its place has been the apartment and industrial property market. The only exception was in 2018 when the retail market was the most popular. 

Here is the breakdown of what was big among investors in 2021:

  • Industrial by 35%

  • Apartments by 31%

  • Office by 27%

  • Retail by 4%

  • Hotels by 3%

So what drives foreign investors to the United States? There are several factors at play that make America ideal for investors. The return on investments could be more rewarding or the barrier of entry for non-citizens might be lower compared to their own homeland. Another factor is that investors have more confidence in the American real estate market than the stock market.  

The takeaway from this is that America is one of the ideal nations for global investors. Despite what some click-bait article or some tankie on Twitter has to say, America continues to be one of the best nations for investors abroad and here at home. 

Carlos Azucena