Crossing Borders with Commercial Real Estate

Commercial real estate is continuing to improve and emerge from the 2008 global financial crisis. Finally, after incremental annual improvements, 2015 proved to be a banner year. Stellar volumes, however, are hard to sustain, especially in tandem with political upheavals. In the end, 2016 proved to be a solid year for commercial transactions, despite coming short of 2015’s numbers.

At the start of 2017, most forecasters predicted further improvements. JLL reported that global investment volumes are projected to climb back toward $700 billion this year, up from $650 billion in 2016.

The future looks especially bright for cross-border investments, which fell to 30 percent of total global capital in 20162, but is expected to pick up again in 2017. In fact, JLL expects cross-border activity to exceed 50 percent by 2020. Which markets are garnering the most interest? Here’s an around-the-world tour of what to expect in the way of cross-border investments.


Mirroring the broader trend among developed nations, commercial real estate transactions in the U.S. reached new records in 2015, then tapered off slightly in 2016. In terms of cross-border investments in the U.S., China grabbed the top spot away from Canada last year.

The following transactions—all hotel properties —were among the most high profile Chinese purchases in the U.S.: • Strategic Hotels and Resorts - $6.5 billion, to Anbang Insurance Group • Hilton (25 percent stake) - $6.49 billion, to Chinese conglomerate HNA • Starwood Capital Group - $2 billion, to China Life Insurance

In 2016, the Association for Foreign Investors in Real Estate (AFIRE) ranked New York City #1 for global investment, ahead of London, San Francisco and Berlin. According to AFIRE’s survey, 64 percent of foreign investors say they will increase their U.S. allocation, while 31 percent plan to maintain current levels.

Looking exclusively at New York City, Real Capital Analytics (RCA) found the following countries representing the top five sources of outside investment capital for the first three quarters of 2016:

• China - 21 purchases totaling $4.8 billion
• Germany - 8 investments worth $2.1 billion
• Rounding out the top five: Hong Kong, Saudi Arabia and Canada

It’s worth noting that this top-five list regularly changes, which can be interpreted as a positive sign that New York City faces no difficulty attracting global capital from a wide variety of sources. As of the first three quarters of 2016, RCA tracked 58 foreign purchases totaling $14.375 billion in Manhattan alone.

Adding NYC’s boroughs would drive this figure significantly higher. Brooklyn, for example, represents another $10 billion annually in commercial transactions, albeit at a lower level of foreign participation.

Comparing global investment in New York City to the rest of the U.S., RCA reports that 34 percent of all institutional purchases in NYC are by foreign investors, compared to 21 percent nationwide.

Many other U.S. cities are also hotbeds for global investors. Over the first three quarters of 2016, for example, Los Angeles moved into the #3 spot (ahead of both Tokyo and Paris) with a percent increase in total transactions equaling $15.7 billion, largely due to an increase of foreign investment³.

Among JLL’s top 30 cities in the world for real estate investment, 16 are in the U.S, including Washington, D.C. (#6) and Chicago (#8). The firm also notes that investor interest is growing in several so-called New World Cities —mid-sized cities that typically excel in high-tech and high-value sectors and offer other competitive benefits. Examples in the U.S. include Boston, Dallas and Seattle.


Did you know that Canada’s commercial real estate transaction volume grew faster last year than anywhere else in the developed world?4 Over the first three quarters of 2016, Canada’s deal volume experienced a 32 percent increase over the prior year, sharply reversing a three-year trend.

A number of internal and external factors played a role in driving last year’s growth, including strong cross-border activity—27 percent of Canada’s total deal volume. Investors from China led the way, followed by the U.S.

International participation in Canada’s commercial markets is most noticeable in Toronto and Vancouver, where total transaction volume growth (for the first three quarters of 2016) was up 45.1 percent and 9.8 percent, respectively.


In spite of disruptions stemming from the U.K.’s Brexit vote and uncertainty about future geopolitical developments across the continent, European commercial real estate remains a global market of choice. As previously noted, however, 2015’s record levels were difficult to maintain and cross-border investors did reduce their participation in European commercial real estate last year.

The three main economies of Western Europe—Germany, the U.K., and France— still attract the highest levels of investment, although other smaller markets are also drawing healthy interest, sometimes from surprising sources. For example, Cushman & Wakefield (C&W) observed new South African interest flowing into Montenegro, Serbia and Poland. Other possible targets include JLL’s New World Cities of Europe—Stockholm, Brussels, Oslo, Vienna and Dublin.

C&W expects strong property investment demand to continue across Europe in 2017. Interestingly, the firm also expects Asia to overtake North America as the top source of capital flowing into Europe (beyond Europeans’ own cross-border investments).


In 2016, Chinese buyers invested a record $33 billion in overseas property, a one-year increase of nearly 53 percent5. In fact, as of the third quarter, 2016, China overtook the U.S. as the world’s largest cross-border buyer of commercial property.

Where are Chinese investors making their purchases? The top destination was the U.S. ($15.1 billion), followed by Australia ($6.6 billion), Hong Kong, Malaysia and the U.K.6 In 2016, there was also a major uptick in the number of megadeals by Chinese investors, with nine transactions exceeding $1 billion, including five in the U.S. and three in Hong Kong.

There is some concern that Chinese participation will be dialed back in 2017, partly due to official announcements by China’s State Administration of Foreign Exchange indicating closer scrutiny of deals. However, this may also be viewed as a reasonable reaction by authorities to minimize any negative impacts on the domestic economy, especially in light of pressures on the renminbi and reductions in its foreign exchange reserves.

A slowdown of money flowing out of China may not be entirely bad news, especially in prime markets, where other foreign investors would likely step in. For example, late in 2016, Tokyo-based Mori Trust Co. announced plans to invest $7 billion globally and has already acquired two office buildings in Boston.


Most commercial real estate experts see strong investment activity continuing in 2017, barring an unexpected shock to the global economy. However, given the vast number of variables at play, looking beyond this year is considerably more difficult.  this year is considerably more difficult.

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