International CRE Investment Picks Up After A 2022 Downturn

Like most boom years on the commercial real estate (CRE) front, the end can sometimes come very quickly. So can a jumpstart. 

Whether it be multifamily housing or office space before the pandemic, CRE sectors tend to have their heyday before tumbling back to a new reality. In 2022 and 2023, rising mortgage interest rates have forced the hand of those now shying away from CRE investment. But has that reluctance struck multinational investors as well? 

MSCI Inc. reported that 2022 cross-border investment dropped from 9% of all CRE investment sales volume to 5%. International investors also became net property sellers, acquiring assets worth $34.8 billion, which were then sold at $46.9 billion. At that time, it signified the most significant decline since before the Great Financial Crisis. 

Unlike most in countries, foreign national investors in U.S. real estate have the same rights as U.S. citizens to buy and own property in the country.

Last year, the biggest share of international CRE interest was in multifamily investment, which totaled $14.6 billion but signified a definitive cooling compared to past years. Foreign investment interests were led by Canada, which spent 48% less in 2022, followed by South Korea, Germany and Switzerland, with double-digit declines.  Only Japan and Spain increased their investments in U.S. real estate last year. 

According to Colliers Capital Markets, foreign investment in 2022 was down 53%. New and restrictive legislation in some states such as Florida will not invite increased international investment.  

In May, Florida Gov. Ron DeSantis signed into law Senate Bill (SB) 264, which as of July 1 restricts the issuance of state-level government contracts or economic development incentives to real property ownership by specific individuals and entities associated with foreign "countries of concern." Countries of concern include China, Russia, Iran, North Korea, Cuba, Venezuela and Syria. 

But some isolated and significant transactions in 2023 have contributed to increased activity in the first quarter. Among them, a South Korean investor purchased a 286,000-square-foot office tower at 350 California St. in San Francisco at a 75% discount to its asking price, according to GlobeSt.com. Needless to say, the city is ripe for office space deals, with 31% of space downtown — 18.4 million square feet — now available for lease or sublease. 

International investment in the first quarter has risen to $15.6 billion, with a net acquisition of $11.7 billion, according to the Association for International Real Estate Investors. 

That includes international investment from China, which continues to be controversial. Electric vehicle battery company Gotion Inc. is investing $2.4 billion to build two 550,000-square-foot electric vehicle battery plants and other supporting facilities on 260 acres in Michigan. Because Gotion is owned by the government, like most companies in China, the Biden administration was enlisted to approve the construction but only after a lengthy national security review. 

The U.S. Committee on Foreign Investment, which reviews foreign investments with the potential of posing a national security threat, gave the green light to Gotion after determining the facility was not a covered real estate transaction or purchase under the Defense Production Act.  But according to Bridge Michigan, critics of the site are pointing to potential national security threats as well as potential environmental damage caused by the amount of water the facility will potentially use. 

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