Interest Rate Hikes, Downturn Fears Put a Dent in Foreign Investors’ Love for U.S. Real Estate

Foreign investors saw U.S. commercial real estate as a safe bet for years. However, the Federal Reserve’s multiple interest rate hikes, rising inflation, and recession fears have taken a toll. According to a report by MSCI Real Assets, cross-border investors accounted for only 5% of overall commercial real estate investment sales volume in the U.S. last year, down from 9% the previous year. The largest share of these dispositions involved multifamily properties, totaling $14.6 billion.

What’s happening to foreign investors’ capital-raising and allocation plans for U.S. commercial assets? In a recent interview with AFIRE CEO Gunnar Branson, he mentioned investors becoming more cautious due to the denominator effect in terms of allocations to real estate. On the other hand, many global investors claimed their companies’ allocations to U.S. commercial real estate were either on track or ahead of where they expected them to be.

Related Facts

• In a Summer 2022 Pulse survey by AFIRE, 80% of surveyed investors said that the impact of higher interest rates and rising inflation on the market was worse than anticipated.
• The influx of capital into the U.S. real estate sector from Canada fell by 48% in 2022.
• Only Japan and Spain significantly increased their spending volume from the top 10 list of cross-border buyers of U.S. properties.

Key Takeaway

In conclusion, foreign investors’ love for U.S. commercial real estate has been dented, mainly because of rising interest rates and recession fears. As a result, while investors remain enthusiastic about U.S. real estate investment, they are becoming more cautious. Moreover, the current situation has affected the overall investments in multifamily properties, which marks the largest decline since before the Great Financial Crisis. Therefore, investors must monitor the real estate market and adjust their strategies accordingly.