Splashy foreign direct investment (FDI) in US commercial real estate receives a lot of media attention. Despite the intense coverage, however, our data indicates that outside of certain markets and property types, FDI is not as large a player as the media might make it seem.
When we examined the US commercial real estate landscape from 2011 to today we discovered that FDI accounts for about eight percent of CRE investment activity in office, multifamily, retail and industrial markets, collectively. FDI is most attracted to office inventory, where it represents about 13 percent of market investment. Industrials trail behind at seven percent FDI; multifamily and retail tie for last place, each at five percent.
These aren’t small numbers, but they aren’t huge either. So while FDI plays an important role in certain markets and asset classes, it’s not a dominant investor category in the US.
There are a few markets where foreign investment volume has the ability to move the needle. Leading the list are Memphis industrials and Honolulu retail. But given the fact that these are smaller markets, it can be easier for one investor to dominate volume. As for office, it’s the bigger markets that attract the most active foreign investment. Washington, D.C., has been a strong option for FDI investors, who account for 24% of its total investment, followed by Boston at 23%, and New York and Houston both at 21%. The closest any apartment market gets to these numbers is San Jose, at 15%. But for all these markets, direct foreign investment is more the exception than the rule.
The big takeaway? FDI is a compelling but relatively small component of the CRE world. Enjoy those breathless stories, while also understanding the broader picture.