Asian Investment in US Office Assets Continues to Surge

by Ioana Neamt

There’s been much talk lately of record Asian capital being pumped into the U.S. commercial real estate market, especially in the past year. Foreign investors stole the spotlight in 2016, injecting billions in commercial assets, with a clear preference for the office and hospitality sectors. Anbang Insurance Group’s $5.5 billion buyout of Strategic Hotels & Resorts from Blackstone was all over the news in the past year, proving to be the largest commercial deal of 2016 and the second-largest Chinese investment in U.S. real estate.

An Asia Society Special Report released last year identified the most attractive U.S. markets for Chinese investors. We thought we’d track down Asian investment activity in each of these markets, focusing exclusively on major office deals. We enlisted the help of Yardi Matrix data to extract the top 20 largest office transactions from 2012 to 2016, in each of the 7 key markets identified by the report: New York City, Los Angeles, San Francisco, Chicago, Seattle, Boston and Miami. Then we checked which of these trophy assets were acquired by Asian-based investors.

After the first round of research, we excluded Boston and Miami from our analysis, as our data showed that Asian-led trophy office acquisitions in these markets were negligible. Only one Boston sale was closed by Asian buyers in the past five years, and no major Asian-led office investments were recorded in Miami between 2012 and 2016. The results shouldn’t surprise you—the most attractive office market for offshore buyers lies on the East Coast, and that market is the New York City office market. Turns out, Asian investors aren’t as keen on buying office properties as they are on developing new ones, the exception being the Big Apple, which promises stable, long-term returns.

Asian Investment Surged in 2016–Is the Trend Likely to Continue?

The results of our analysis emphasize the fact that New York City’s office market remains the main target for foreign investment in the U.S. As far as major office transactions go, 2016 proved to be the busiest year for Asian buyers, which unloaded nearly $11 billion on properties in New York City, San Francisco, Los Angeles, Chicago and Seattle (based on the top 20 largest office transactions in each city). And though 69% of these transactions closed in the Big Apple, some buyers preferred to head West and we saw major deals pop up in top-tier markets like Los Angeles and San Francisco, after a few years’ lull.

The overall notable factor is that, before 2016, Asian investment was moderately concentrated in strong established markets and there does not seem to have been an urge to seek new destinations for capital. Last year’s shopping spree may have been investors’ attempt to get as much in as possible before new restrictions kick in–the Chinese government is reportedly preparing to impose new rules to curb “irrational” outbound investment. According to Fortune, the government’s efforts seem to already be paying off, as non-financial outbound investment decreased by nearly 53% year-over-year in the first two months of 2017. Any transactions worth over $1 billion will be scrutinized closely and take even longer to complete, pushing investors to pursue a higher number of smaller deals. Consequently, there might not be as many $1+ billion Asian-led office deals in the years to come.

Read the full story on the COMMERCIALCafé blog.