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Foreign Investors Will Continue to Favor U.S. Assets

As the cycle continues, we predict that overall investment volumes will decline modestly from their 2015 peak while remaining strong by historical standard.

As we navigate the second quarter of 2017, interest in and values of U.S. properties are at an all-time high. Globalization has been a buzzword in the commercial real estate industry for years and, despite global uncertainty in many areas, global activity is accelerating. Last year, we appraised more than 245,000 properties globally that were collectively valued at a staggering $2.86 trillion. The team of valuation and advisory professionals that I lead at Cushman & Wakefield has a front row seat to witness the ebb and flow of investment capital and, specifically, the impact of international investment on the U.S. property market.

In the wake of international events like Brexit, investors are flocking to the U.S. in droves, and global interest in assets here continues to proliferate. That’s particularly the case when it comes to Asian capital: as China works to rebalance its economy and negative interest rates continue to impact Japan, property stateside remains an attractive investment for Asian investors. I’ve heard clients call the U.S. a “safety deposit box” for capital—and I think that continues to be true: the American economy is growing faster and our assets are offering higher yields than alternatives elsewhere in the world. Yields on government bonds in some European markets are negative in some cases, while U.S. commercial property remains on comparatively solid footing, driving demand.

Leasing fundamentals in the U.S. remain solid, providing for NOI growth and good cash flow. And according to data firm Real Capital Analytics, U.S. real estate captured 31 percent of all global capital last year—more than double the figures reported in the preceding 18 months. As the cycle continues, we predict that overall investment volumes will decline modestly from their 2015 peak while remaining strong by historical standard. This outlook is supported by continued strong, and perhaps even accelerating, inflows of foreign capital—particularly from Asian investors—into major population centers, including traditional targets like New York and San Francisco, but supplemented with diversification into major secondary cities like Dallas.

Domestically, we predict that certain sectors will continue to pique investors’ interest, while others will seek a reinvention of sorts. For example, as the Baby Boomer population ages over the next decade, seniors housing will draw considerable interest from investors. And, in the retail sector, rising cap rates and the focus of some brands on “right-sizing” will continue to drive redevelopment opportunities for both retailers and operators. We see great opportunity here: as more and more big-box space becomes vacant in shopping malls, the potential for accretive development is great.

Now, more than ever, we believe it’s crucial for investors, investment managers, landlords and lenders alike to partner with advisors who can explain, in critical detail, how to leverage current market forces and capital flow in order to extract value from these very large assets -- and how to make them successful.

Nicole Urquhart-Bradley is president of valuation & advisory for the Americas at Cushman & Wakefield.  The firm’s V&A team is comprised of more than 600 professionals in the Americas and appraises more than $1 trillion in property per year.

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