As the COVID-19 pandemic raged in 2020, the global volume of commercial real estate sales transactions of at least $2.5 million fell by 20%. However, while commercial real estate deals declined globally, the United States remains the top commercial estate market globally, with 16 U.S. metros in the top 30 largest commercial real estate markets on a global scale, according to NAR’s 2021 Commercial International Real Estate Business Trends Report.
NYC Metro remains the top commercial real estate market in the world
Many global cities suffered more than 20% declines in commercial real estate transactions, including the New York City metro (-41.3%), but the NYC metro area retained its #1 position as the largest commercial real estate market in the world ($28.5 B). Sixteen U.S. cities made it to the top 30 largest commercial real estate markets in the world based on the level of acquisitions of domestic, continental, and global (non-continental, non-domestic) acquisitions in those markets: NYC Metro, LA Metro, SF Metro, Dallas, DC Metro, Boston Metro, Atlanta Metro, Phoenix, Seattle, Chicago, Denver, Miami, Houston, Charlotte, Raleigh/Durham, and Philadelphia.
Foreign investors are moving into secondary markets
Looking into only cross-border capital flows, investors scaled back their investments in most U.S. markets. However cross-border capital flowed into several secondary or tertiary markets in California where the cost of office space and cost of living is cheaper than in San Francisco or Los Angeles: the Inland Empire (west of LA, including Riverside), Sacramento, San Diego, and the East Bay. Indianapolis also made it onto the list of metro areas where cross-border capital flowed into commercial real estate acquisitions of $2.5 million or over.
Canada, South Korea, and Germany are the largest investors in U.S. commercial real estate
Canada remained the largest source of cross-border capital investing in U.S. commercial real estate in 2020 ($12.4 Bn), followed by South Korea ($5.2 Bn) and Germany ($4.0 Bn). Cross-border inflows into the U.S. decreased from several countries, except for a notable increase in inflows from South Korea (+102.7%), Singapore (+18%), United Kingdom (+15%), France (+18%), and Sweden (+63%).
Cross-border acquisitions shifts towards industrial and multifamily assets
Foreign investors are increasingly investing in multifamily and industrial real estate. Acquisitions of industrial property accounted for 31% of cross-border capital flows, followed by multifamily, at 27%, and office buildings located in central business districts, at 20%.
In 2020, cross-border acquisitions declined across all property types, except for industrial acquisitions, which increased by 62% to $10.8 billion ($6.7 billion in 2019).
Foreign investors have shifted from retail to industrial acquisitions. Acquisitions of retail property has sharply declined since 2018, when acquisitions peaked to $29.2 billion in 2018, or 31% of cross-border flows. Conversely, during this same period, the share of industrial acquisitions to total cross-border flows rose from 17% to 30%.
74% of NAR Commercial Members Expect International Real Estate Business to Recover by 2023
The commercial real estate market in the U.S. remains the top commercial estate market globally. Like other countries, the pandemic has impacted commercial real estate transactions, but this impact is transitory, especially in light of the accelerated vaccine distribution that is slated to be completed by the summer of 2021. Seventy-eight percent of NAR commercial members are optimistic that their international business will return to pre-pandemic level by 2023.
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