Foreign Investment In U.S. Real Estate Remains Elevated; Capital Preservation And Stability Often Prioritized Over Yield

Sector Highlights

Apartment: Completions will climb to 285,000 units this year, likely setting the peak during this development cycle. Even as a significant amount of new stock in a limited number of metros raises some local vacancy rates, the broader effects of heightened construction on the nationwide vacancy rate will remain minimal. This year, the national vacancy rate is forecast to hit 4.2 percent, while the average rent should rise by 4.5 percent.

Hospitality: U.S. hotels maintained record levels of occupied rooms and room revenue through the first half of 2016. The annual U.S. occupancy rate will achieve its highest level on record this year, 65.8 percent. Primary measures of revenue performance will also increase.

Industrial: Demand for industrial space is growing and construction remains restrained after years of falling vacancy. In 2016, completions will decrease to 150 million square feet and the vacancy rate will decline to 5.8 percent behind net absorption of more than 200 million square feet.

Office: Sustained growth in office using employment is generating tenant expansions and the creation of new office based businesses. With restrained construction, rising space demand will fuel further tightening in the U.S. vacancy rate to 14.7 percent this year. Rents will continue to gain momentum, rising by a forecast 3.9 percent in 2016.

Retail: In U.S. retail properties remains strong despite the rapid growth of online retail. In the second quarter, the vacancy rate reached a level last seen in 2005, with the trend pointing toward additional tightening this year to 5.7 percent at year end. Much of the 46 million square feet of space slated for completion will be single tenant formats that include restaurants and other growth leading retail segments.

*The EB-5 Immigrant Investor Program provides a visa to a foreign citizen who invests a minimum $500,000 into projects or businesses that create at least 10 jobs, among other thresholds and stipulations. EB-5 has become a frequently used source of capital formation for large commercial real estate developments, most often employed as mezzanine debt. The program has recently emerged as an avenue enabling Chinese families to send their children to U.S. colleges. Upon completion of the commercial project, a green card conferring permanent U.S. residency is issued and an application for U.S. citizenship can be subsequently submitted. The eventual repayment of the mezzanine debt by the developer to the EB-5 participant effectively “onshores” the capital and potentially liberates it for new investment in U.S. commercial property.

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