Global political and market conditions can and will have a major affect on Commercial Real Estate (CRE) in the United States. The US has long been considered one of, if not the most, stable and transparent property markets in the world, which means that global capital is naturally driven into domestic CRE.
For example, in 2015 US real estate assets purchased by foreign entities rose to $62 billion. Given economic and political instability in some markets (especially China and post Brexit Europe), domestic investors face increased competition, but also increasing value in existing CRE stock.
We can also take lessons from the red-hot market in Vancouver, BC, which is fueled in large part by foreign speculation, and now faces new foreign investor taxes which are being introduced to slow demand and keep housing prices affordable for middle class citizens.
While it is unlikely that such taxes would be introduced in the US markets, it is certainly a reminder of how foreign speculation and investment capital can swing domestic real estate prices. In 2015 the Manhattan CRE market, for example, saw 35% of all transactions, involving $22.7 billion, involve foreign investors (according to Real Capital Analytics).
Another consideration is whether or not domestic market fundamentals have been upset by foreign capital flows. According to CBRE and Moody’s data, the value of office property has nearly doubled in value, yet office rents on a national scale have only risen by 15%. This suggests a bubble in the making.
The inter-relatedness and reality of the modern global economy also mean that the value of the dollar, the price of oil, erratic stock markets across the globe, and slowdowns in major economies, interest rates, and the sentiment of global wealth holders all have an impact on the price of commercial real estate.
Carefully examining macroeconomic factors—economic indicators such as GDP and income growth, global interest rates, US foreign capital inflows—and understanding the motivations of foreign buyers will help you to craft sound investment strategies with regards to CRE.
In addition, here are some great resources to help you identify trends:
Troy Muljat is a Washington State certified commercial appraiser and broker with over 25 years of experience in the commercial real estate industry. He holds the Certified Commercial Investment Member (CCIM) and Certified Property Manager® (CPM) designations through the National Association of Realtors.He specializes in brokerage, leasing, property management, development, and commercial appraisal.Visit TroyMuljat.com for more information about Troy.