There are still many unknowns about the commercial real estate market, especially when it comes to office space. But one thing we do know is that foreign investment in commercial real estate here in the United States has shrunk significantly, with some exceptions. And those declines, and those exceptions, shed light on how the nation's commercial real estate is faring.
The peak of U.S. real estate purchases by foreigners was in 2017.
“That's $153 billion in the housing sector,” said Jessica Lautz, an economist and vice president of research at the National Association of Realtors.
Now it's just $53 billion. “Things really got worse,” Lautz said.
However, the percentage of homes owned by non-Americans in the United States is typically much smaller, between 2% and 3%. The proportion of commercial real estate owned by foreign investors is much higher, or at least is becoming more so.
“Historically, the average has been around 10-11%, and last year it was 6%,” said Riaz Kassam, global head of international capital at real estate services firm JLL.
What about that drop? Stephen Bethel saw it firsthand. He is the National Director of his Frazier Capital Brokerage & Valuation.
“My Tiawane Bank customers, they are not currently making commercial real estate loans in the United States. ,” Bethel said.
On the other hand, interest rates remain high and it is uncertain when they will be lowered. It is affecting domestic and foreign investors. Commercial real estate sales volume in the U.S. is down 63%, Bethel said.
But on top of that, some foreign investors have financial problems in their home countries and need to liquidate their funds. This is especially true for Chinese investors. South Korean investors have made big bets on office space in the past, but they have failed badly and are retreating.
“Well, we're seeing office buildings selling for 30, 40, 50, even 60 percent below the high end of the market,” Kassam said.
However, there are some areas of commercial real estate where there is strong foreign interest.
“I was just meeting with a number of large sovereign wealth funds and large investors in the Middle East. They continue to be interested in US real estate, but are looking more at data centers, life sciences, student housing, etc. ,” Kassam said.
Something that is not an office building. While office buildings continue to decline, Kassum says, foreign interest is helping to prop up these sectors.
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