Orange County Partnership - News

COVID Pandemic Causes Drastic Decline in Foreign Investment in U.S. Real Estate

Commercial brokerage firm CBRE released a report on Aug. 27 on the levels of U.S. Inbound & Outbound Investment Trends for the first half of 2020 that clearly showed the deep impact the worldwide coronavirus pandemic had on foreign investment in U.S. real estate.


Inbound (foreign) capital declined 34% in the first half of this year as global lockdown measures mainly imposed at the end of the first quarter and throughout the second quarter caused market uncertainty. The global outbreak of COVID-19 caused inbound capital for U.S. real estate to decline by 70% in the second quarter.


The perennial leading source of inbound capital EMEA (Europe, the Middle East and Africa) dropped U.S. real estate investment by 48% year-over year. Other troubling stats included Canada and APAC (Asia-Pacific) inbound capital were down 22% and 10% respectively, while Latin America, not a major player in U.S. real estate, decreasing its investment here by 84%.


In terms of U.S. foreign investment (capital outflows) were essentially unchanged from the first half of 2019, according to the CBRE report. However, 80% of U.S. foreign real estate investment was deployed in the first quarter of 2020. Total U.S. outbound capital exceeded inbound capital by $8.2 billion in the first half of this year, as compared to a $4.6-billion gap in the first half of 2019.


U.S. investment in the Asia Pacific declined 55% from the first quarter to the second quarter and in the EMEA and the rest of the Americas, outbound capital was off by roughly 100%.


The top five sources of inbound capital investment to the U.S. for the first half of 2020 were Canada at $4.4 billion (down 29%); Germany $1.4 billion (down 35%); Singapore $1.3 billion (down 60%); South Korea $654 million (down 18%) and Switzerland $527 million (down 32%).


The top five destinations for U.S. foreign investment for the first half of this year were: the United Kingdom $8.1 billion (up 41.1%); Germany $2.4 billion (up 12.2%); Netherlands $2.0 billion (up 10.1%); France $1.6 billion (up 8.2%) and Japan $1.3 billion (up 6.6%).


Foreign investment in U.S. industrial assets was up 15% from the first half of 2019, while all other sectors suffered significant declines. At least 70% of the first half of industrial, office and multifamily volumes were recorded in the first quarter. Although retail investment improved slightly in the second quarter, investment in the sector in the first half of 2020 was the lowest since 2009, the CBRE report notes. 


Relative to the past five years, foreign investment in the first half of this year increased in just five of the 52 largest U.S. markets and was down sharply in the top five U.S. markets, according to the report. On the plus side, five of the top growth markets were adjacent to the top-five gateway markets, including the outlying boroughs of New York City, Sacramento and Oakland in the San Francisco Bay area.


U.S. investment in foreign multifamily assets in the first half of this year exceeded the annual multifamily total for any previous year on record. A $6 billion U.K. student housing portfolio made up 77% of total U.S. investment in the multifamily sector, CBRE reports.