Real Estate Forum - April 2012

Delta Associates

Despite the slow recovery due to uncertainty that
persists in the American economy, foreign investors
are bullish on U.S. commercial real estate assets.

Foreign Investment in
U.S. Commercial Real Estate Assets

$30

$25.3

$25

Foreign Investment in Billions

$20

$15

$10

$19.8

= 6.1% of Total
U. S. Sales Volume
= 9.6% of Total
U. S. Sales Volume

$5

0 2007 2011

Source: Real Capital Analytics, graphic by Delta Associates; March 2012.

Office Space Under Construction in the U.S. Following Recent Recessions

200

Office Space Under Construction in Millions of SF

150

100

50

155.8

96.0

= 2.3% of Existing
Inventory
= 1.2% of Existing
Inventory

0

Year-End 2001

Mid- Year 2009

Source: Delta Associates’ analysis of CoStar data; March 2012.

and Asia (with its currency valuation issues and decelerating economic growth), the U.S. remains a safe haven.

2. Both the job market and consumer spending in the U.S. have demonstrated meaningful (though uneven) growth during the past year. The U.S. economy added 2.0 million payroll jobs during the 12 months ending in February 2012 and consumer spending rose 2. 2 percent in 2011 compared to 2010.

3. The U.S. commercial markets were not overbuilt during the most recent downturn, at least not compared to prior recessions. For example, 96 million square feet of office space was under construction nationally when the Great Recession ended at mid-year 2009, which represented 1. 2 percent of the existing inventory. This compares to

155.8 million square feet under construction ( 2. 3 percent of the U.S. inventory) at year-end 2001, just after the end of the prior recession. Information, due in large part to improved technology, is better and developers are able to exert more discipline today than they were a decade ago.

Despite the slow recovery due to uncertainty that persists in the American economy, foreign investors are bullish on U.S. commercial real estate assets. For owners of U.S. assets, that means a broader audience when assets are brought to market; greater competition should push prices higher as the economic recovery gains strength. For tenants, be aware that a change in ownership at a higher cost basis could portend higher rents with less capital available for improvements in the years ahead. This suggests an action plan sooner rather than later.