A strong recovery in 2021 in the U.S. commercial real estate market attracted foreign investors who purchased an estimated $57.7 billion in U.S. commercial real estate in 2021, up 49% from 2020, according to NAR's 2022 Commercial Real Estate International Business Trends Report.
In the large capital market where transactions are at least $2.5 million, Real Capital Analytics reported that cross-border capital flows rose 44% to $52.9 billion during the four quarters through 2021 Q3, accounting for 8% of total domestic and cross-border transactions of $638.2 billion.
This brings the 2021 cross-border flows back to the pre-pandemic level ($52.6 billion in 2019). Foreign institutional investors (professional, pension, and sovereign funds; banks; insurance companies) drove commercial real estate acquisitions, acquiring $37 billion or 70% of the total $52.9 billion in cross-border flows.
Investors shifted their acquisitions toward secondary markets, with Seattle, Atlanta, and Dallas outranking Manhattan as the top destinations of foreign investors. Manhattan had been the #1 destination of foreign investors in 2020 and for most years prior. The share of cross-border capital of the six major markets (New York, Chicago, Boston, Washington, D.C., Los Angeles, and San Francisco) decreased to 37%, from 45% in 2020. In 2019, the six major markets accounted for 50% of acquisitions.
Non major markets are attracting foreign investors given the migration in these areas and the relatively cheaper cost of acquiring real estate in these markets.
Canada was the major source of capital. It was also the #1 investor in 2020 and for most years. Other major investors were from Asia, namely Singapore and South Korea, which each invested $7 billion to $8 billion.
Cross-border flows from China totaled less than $1 billion, a decline from the level in 2018 when investments totaled $5.8 billion, after investments declined in the wake of the US-China trade war in 2018-2019 and COVID-related travel restrictions since 2020.
The industrial market accounted for the largest share of acquisitions ($18.1 billion), with the largest investments going to Chicago ($1.4 billion) and Dallas ($1.2 billion).
Surprisingly, when the office market is suffering from its highest vacancy since the Great Recession, it drew the second largest share of foreign investor acquisitions, at $16 billion, or 30% of total acquisitions.
Seattle accounted for the largest office investment ($2.2 billion). Foreign investors remained bullish on San Francisco, making the second largest investment ($2.2 billion). Other markets where investors made over $1 billion were Boston ($1.6 billion) and the District of Columbia ($1.1 billion). In Manhattan, investor’s acquisitions for office properties totaled $805 million