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August 31, 2017
The U.S. continues to attract more offshore capital than any other country, garnering just under $20 billion in the first six months of 2017. The majority of the capital coming into the U.S. – 55 percent to be exact – is focused on the office sector.

But could that be changing soon? Canadian investors, who account for roughly 30 percent of all offshore investment into the U.S. this year, are deviating from the norm and branching into other sectors. The majority of capital from our neighbors to the north is now starting to go into asset classes outside of office.

“While offshore capital has historically focused on office assets in the U.S., Canada is increasingly investing in other sectors, like industrial and multifamily,” explains Sean Coghlan, Director of Investor Research at JLL.

What’s driving Canada’s diversification?

According to Coghlan, Canadian investors are more comfortable with U.S. real estate than groups from other countries. Canada is geographically close to the U.S., and the two countries share similar cultures in terms of consumer behavior and business norms.

“Canadian investors were actively investing in the U.S. before other groups, so they’ve had more time to gain a comprehensive understanding of our market and develop a higher risk appetite,” says Coghlan.

About one-third of Canadian capital coming into the U.S. in 2017 has gone into the multifamily sector. Canada is one of a handful of countries outside the U.S. with a large rental housing market, so its’ investors understand the market and are more comfortable investing in it.

The industrial sector has garnered another one-third of Canadian capital this year, and this is expected to grow further by year-end. Industrial assets attracted increased amounts of institutional capital throughout this cycle, which has helped draw interest from Canadian investors.

Will other investors follow suit?

Coghlan predicts the U.S. will continue to see more diversified investment from Canadian firms. “They are confident in the U.S. economy and are already active in the alternative sectors, like seniors and student housing.”

He also expects to see groups from other countries take a cue from Canada and increase investments into non-office assets as their portfolios mature and expand. “We’re already seeing increased interest in sectors that weren’t traditionally part of offshore investors’ portfolios. That trend will continue.”

Read more about this topic in Real Estate Alert.

For more insight into the latest investment trends, download  JLL’s H1 2017 U.S. Investment Outlook.

Sean Coghlan
Director, Investor Research, JLL

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