The Azucena Take: What Makes American Investment Real Estate Ideal?

The United States is not just a land of opportunity for those that live here but also for those who live abroad. This is best highlighted by how appealing the American investment real estate market is for foreign investors. While accounting for only 10% of transactions, it currently has brought in over $75 billion in Q1 2022.  

Foreign investors play a major role in fueling the American investment real estate market and it helps to understand how. 

Top Global Investors in 2022

As of 2022, the top nations that invest in American commercial real estate are:

Canada by 37%
Singapore by 22%
South Korea by 8%
Germany by 5%
Bahrain by 4%
United Kingdom by 3%
Switzerland by 3%
Other Nations by 18% 

It should be noted that the data collected is based on direct investment by individuals or investment firms. It's not possible to find accurate data about the investments made through an intermediary or a domestic institution working on someone's behalf. One could speculate that those working through a third party are also greatly contributing to the market. 

What Makes America so Appealing?

So what drives foreign investors to the United States? There are several factors at play that make America ideal for investors. Here are the three most important points to consider:

Confidence in the American Economy: This should be obvious, foreign investors are attracted to America because of the overall economy. As of May 2022; over 148 million people are employed while unemployment is below 4%. This has also led to strong retail sales that have surpassed $450 billion USD. 

Higher Yields: Investing in commercial real estate in America produces higher yields than in any other country. The average cap rate in America is 5.9%, which is higher compared to 5.5% in the UK, 5.3% in Canada, or 5.1% in France. 

Market Stability: The US Dollar is the most stable and widely used currency in the world. It's also the reserved currency or official currency of over 30 countries and territories. That is why foreign investors favor the US market because it's stable and the power of the dollar. Plus stability promises long-term return on investments. 

Interest Rates and Inflation

You are wondering if this matters given the ongoing inflation crisis and rising interest rates? Is America still appealing to investors? The short answer is yes.  

Having such concerns just demonstrates an individual's ignorance of global markets and affairs. The current inflation crisis is a global crisis brought on by the pandemic and the hit to supply chains. Every nation is dealing with this problem, not just America. 

At the same time, numerous central banks have already or are planning to raise interest rates in 2022. The Bank of Canada has already raised interest rates three times in 2022, the Bank of England has done it five times, while the European Central Bank is expected to do it this month.

Here is a quick breakdown of how much central banks have risen interest rates as of June 2022:

Federal Reserve by 75 BPS
Central Bank of Bahrain by 75 BPS
Bank of Canada by 50 BPS
Swiss National Bank by 50 BPS
European Central Bank by 25 BPS
Bank of Korea by 25 BPS
Bank of England by 25 BPS

What Does it Mean for Investors?

Remember in the series Arrested Development when George Bluth tells Michael "There's always money in the banana stand". The same principle applies here. Investors should not be dissuaded from growing or they risk losing out to other investors who see a promising source of revenue. This doesn't mean go all out and buy real estate. Plan with an advisor who better understands the market and your holdings. 

The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap