The U.S.’s skyline offices might rise up from continental soil, but their ownership is increasingly international and diverse.
The numbers from JLL’s latest Skyline report are eye opening: In 2015, all of the foreign skyline investment went into ultra-premium trophy buildings in primary markets like New York and Los Angeles, while secondary markets accounted for 23 percent of foreign investment into U.S. skylines in 2016.
“Foreign investors have continued to target secondary markets in 2017, but thus far at a slightly diminished pace relative to last year,” said Scott Homa, JLL Director of U.S. Office Research. “This year, we have seen about $150 million, or nearly 3 percent of foreign volume head to secondary markets.”
But that doesn’t mean there won’t be an uptick. JLL research shows that in 2016, 58 percent of foreign investment into the skyline came in the second half.
Canada continues to lead the way for offshore investors, with over half (54.4 percent) of all inbound capital coming from there. Germany (12.8 percent), Switzerland (8.3 percent), Japan (5.3 percent) and China and Singapore (3 percent each) round out the top capital sources nationally, with secondary cities like Seattle and Denver as some of their top targets.
“Foreign buyers have gotten more comfortable with the U.S. skyline and the product they can find here,” said Jon Geanakos, JLL President, Capital Markets Americas. “What’s most notable is that these foreign buyers have even shifted away from strictly pursuing trophy buildings in primary markets, and in some cases are snapping up slightly-less-sought-after Class A assets in secondary markets.”
It’s not all about the skyline
Some investors are willing to leave the comfort of the skyline all together.
China Life’s $950 million purchase of a 95-percent stake of ElmTree Funds’ portfolio is an example of this. The 48-asset, 20-state net lease portfolio included industrial, health-care and office assets in cities like Phoenix where foreign investment had been relatively limited.
Deals like this show how foreign investors have also diversified their approach in different asset types. For instance, Geanakos notes, industrial real estate and niche products like student housing have become a target for foreign capital.
“There haven’t been a ton of core opportunities with office towers,” he says. “Foreign investors have capital they need to use, so they are getting more creative and comfortable with looking at industrial and even student housing. We have seen this here in the U.S. and in Europe with Asian sovereign wealth funds making huge portfolio and entity-level acquisitions.
Two recent deals highlight this trend: Singaporean firm Mapletree Investments closed a $1.3 billion deal for a U.S. and UK student housing portfolio, while Singaporean Global Logistics Platform is mulling over a $16 billion buyout from a group of Asian investors.
JLL’s latest Global Capital Flows report notes this trend is happening globally.
Added Homa, “We expect to see foreign buyers continue to diversify their investments through the year, whether that is with a different product type or within the skyline itself.”
Visit JLL’s Skyline for supply, demand, rent and investment data for top-tier office buildings across 57 urban core markets in the United States and Canada.