After years of Canadian dominance of cross-border investment into commercial real estate, Chinese investors have now claimed the top spot, spending $19.2 billion in 2016, compared to Canada’s $13.1 billion. Up ten percent from 2015 when they spent $17.3 billion, Chinese money now makes up 29% of foreign investment in the United States. These growing numbers are not exclusive to commercial real estate, but part of a growing trend in global investments. Chinese corporations and individuals have been sitting on massive amounts of capital, and due to new circumstances are now beginning to invest it throughout the globe. Because of its perceived stability throughout the world, the United States real estate market has been an attractive target for Chinese investors who are focused on long-term returns rather than short term gains.
Deregulation of the Chinese Market
This sudden growth of investment is not out of nowhere. Thanks to new laws that allow life insurance firms to invest up to 15% of their assets overseas, Chinese life insurers now make up half of all investments flowing from China into the United States. These life insurance firms have taken full advantage of the global market, and have made massive moves to secure property within the United States, such as Anbang Insurance Group buying the Waldorf Astoria hotel in New York City for $1.95 billion dollars, and China Life Insurance purchasing a portfolio of hotels from Starwood Capital Group for $2 billion.
Depreciation of the Yaun
Deregulations aren’t the only thing spurring this massive cross-border investment. China’s currency, the yuan, has been steadily decreasing in value for over a year, and this is causing Chinese investors to abandon investments through that and seek investments that aren’t depreciating as quickly. By instead investing their assets into stable American real estate, Chinese investors are able to sustain and increase their wealth, rather than sitting and watching their wealth slowly lose its value over time. With no strong recovery of the yuan yet in sight, strong Chinese investment should be expected to continue.
New York City is, and for the foreseeable future, will remain the primary city for foreign real estate investment. New York absorbs almost half of all Chinese commercial real estate investments, and the city has shown little to no signs of relinquishing that position. What is interesting and different however are alternative markets that have begun to emerge. Foreign investment has begun to focus on cities that attract large amounts of both technology and biotechnology jobs. This has resulted in investments beginning to be turned towards unconventional cities for foreign investors, including places such as Raleigh-Durham, Seattle, Boston, and Denver. The diversification of this foreign investment into American commercial real estate is a strong sign that the market will you continue to grow, even as properties in Los Angeles and New York City begin to lose their appeal to investors.