The state of the global economy, in a state of constant flux, can nevertheless be a harbinger of change in the real estate industry. For five consecutive years, the industry had enjoyed good returns, a trend that experts worry will not be sustainable in the future. Add that to Britain’s departure from the EU, weakening global currency, and many other changing trends, and you have a recipe for uncertainty in the near future.
A large part of the industry’s current success lies in the flow of cross-border capital. The United States has enjoyed a period of dominance in the market, between a strong dollar and a slew of property opportunities. However, the problem lies in the fact that weakening foreign economies will be less poised to invest in the US and therefore lead to a future decline. Despite this, investing in US real estate is still very appealing.
In the second quarter of 2016, Cushman & Wakefield estimated in its US Capital Markets Report that over $450 billion dollars worldwide are used to target commercial real estate, going on to predict that this number would fall in 2018. Still, with US interest rates low, many expect a continued influx of foreign capital. With stiff competition for investment opportunities, many are now seeking ways to invest in secondary markets. In this way, investors and lenders are paying attention to further developments in these markets, displaying a willingness to take risks to pioneer new opportunities.
Additionally, improvements in infrastructure and energy are both possible ways for the US to continue to grow its market. With infrastructure changes adds projects in the form of warehouses, offices, and multifamily housing to accommodate for the necessary labor. Expected government spending on infrastructure has a ripple effect, with more commercial construction occurring in tandem with public works projects.
So who are these investors who are likely to continue to buoy the US real estate industry? Canada accounts for the largest percentage of investment capital, though Chinese investors have consistently emerged as the largest in every real estate sector. However, a change might occur as a result of China cracking down on large foreign real estate purchases, though it remains to be seen how strictly these new policies will be enforced.
It is also expected for High Net Worth Individuals (HNWI) to continue to invest in real estate. As their wealth increases, HNWIs are a prime opportunity for sellers, as they often lack knowledge of real estate on a global scale, with billions of potential investments currently untapped. Currently, many of these individuals are concerned with preserving wealth, so time will tell if they will take more risks in the fairly stable real estate market.
As a result of these additional investment outlets as well as a lower level of risk compared to other cities across the globe, it’s likely that foreign investors will continue to stay abreast of US real estate. In the coming years, investment volume will likely be dependent on individual desire rather than lack of information, as the consistent strength of the US real estate market has become its draw.