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Traditionally, U.S. office space has been attractive to foreign investors. It’s viewed as a stable, long-term investment with the potential for both capital appreciation and a regular income stream through leasing. 

Cities like New York, San Francisco and Chicago are global business hubs, making office real estate in these locations particularly appealing. The U.S. legal system’s transparency and the relatively straightforward property acquisition process add to the allure.

But the landscape is changing, as indicated by AFIRE's Fall 2023 Pulse Report. Despite the historic appeal of U.S. office space, a seismic shift in investor preferences driven by multiple factors like remote work trends, market uncertainties and the growing demand for residential properties is underway. About 90% of institutional investors plan to convert their office space into residential properties over the next five years.

Gunnar Branson, CEO of AFIRE, said that this isn’t just a knee-jerk reaction to current conditions. Investors, who collectively manage around $3 trillion in assets, are making thoughtful, calculated decisions to adjust their portfolios and tap into the burgeoning residential market in American cities.

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Complicating investment decisions further, insurance considerations have emerged as a significant factor. Rising insurance premiums or reduced availability could discourage investing in certain regions of the U.S., according to the report.

The report also delved into the gap between investor ambitions and outcomes. While many had planned to increase their U.S. investments in 2023, only one-fifth met this target. Particularly worrisome are the projections for Class A+ commercial properties, with 64% of investors bracing for value losses above 10%.

The pivot from office to residential properties presents an opportunity for individual investors. Online platforms like Arrived are democratizing access to real estate investment, offering hassle-free avenues to invest in rental homes or vacation properties. Platforms like Arrived are particularly timely for investors seeking to generate passive income, given the institutional shift toward residential properties.

As the large players recalibrate their real estate investment strategies in the U.S., there's a window of opportunity for individual investors to capitalize on the residential market. With easier access and a favorable market trend, now is an opportune time to consider such an investment.

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