Chinese investment in US CRE dramatically scales back, CRE evolution as a service to accelerate in 2019

China’s investment in US commercial real estate scaled back dramatically last year, which has caused expectations for Chinese investment to slip to eighth most active foreign investor in 2019, DLA Piper’s survey found.

DLA Piper wrote that the survey results demonstrate that there is a rise in a new and important cohort of foreign investors who will remain bullish on US real estate. In the previous two surveys, China topped the list of expected foreign investors.

Chinese investors have spent tens of billions of dollars in recent years, often paying record prices and favoring major metro areas such as New York, Los Angeles, San Francisco and Chicago. A notable example includes HNA’s 2017 acquisition of 245 Park Avenue in Manhattan for US$2.2bn.

However, in this year’s survey, there was a dramatic shift. China dropped to eighth place, with Canada landing on top and the Gulf countries, Singapore, South Korea, Germany, Israel and Norway all moving ahead.

Canadian investors are increasingly taking large stakes in US real estate, such as the recent joint venture between Ivanhoe Cambridge and Oxford Properties that acquired the Brookfield-sponsored real estate fund’s industrial portfolio, and Toronto-based Brookfield’s acquisition of Cleveland-based Forest City Realty Trust with a portfolio of office space, warehousing, life sciences and multi-family units in major US cities, including New York, San Francisco and Washington, DC.

For US investment internationally, London was surprisingly still considered the most attractive international city for investment during the next 12 months, despite Brexit concerns, followed by Berlin, Frankfurt, Hong Kong and Sydney.

Real estate as a service

Another prescient theme in the DLA Piper survey was on the evolution of real estate as a service. Survey respondents underscored this emerging trend, suggesting the CRE industry globally is increasingly transitioning to being on-demand service, even within the environments of firms that find it advantageous to enter into long-term leases.

The vision suggests that office spaces will become considerably more efficient as employees increasingly tele-commute, use autonomous cars (drastically reducing parking requirements), with a greater focus on wellness and healthy workplaces while e-commerce continues to restructure shopping centers.

One respondent explained:

“Real estate will become much more efficient and collaborative, and technology will drive continued innovation. Legacy real estate will have to reinvest and adapt to these changes to evolve with the needs of tenants and enterprises.”

Another said:

“The ‘product offering’ of real estate will look more like a service than a space offering. We are seeing the early stages of this already: shorter leases, more services, network effects, and more. Real estate owners are effectively becoming service partners to their tenants and in some cases, even helping provide capital and scaling solutions alongside their network of other benefits and solutions.”

james.wallace@realassetmedia.com