The surging U.S. dollar fueled a property buying spree in Europe and Canada in the first six months of 2022, pushing estimated total cross-border real estate investment flows to their highest first-half total in years.
Total investment flows between the Asia-Pacific region, North America and Europe jumped by 18% year over year in the first half of 2022 to $56.6 billion, led by increases in U.S. capital outflows as high as 271% in countries like Italy, Spain, Canada, Germany and even Poland, according to a new report on global capital flows by real estate services firm CBRE Group Inc.
The $56.6 billion in capital flows the firm estimates were made in the first six months of the year are the highest first-half total since 2018, according to Dallas-based CBRE, the world's biggest real estate brokerage by revenue.
“Current trends indicate that cross-regional commercial real estate investment will remain strong in the near term," CBRE Chief Economist Richard Barkham said in a statement. Asia-Pacific and North America investors "likely will remain particularly active, especially as pandemic-era travel restrictions have almost entirely been lifted."
The increases were mostly driven by U.S. investors taking advantage of favorable dollar exchange rates to buy European assets, according to CBRE.
The dollar surged to a new two-decade high this week after the Federal Reserve raised interest rates by 0.75% for a record third consecutive time and signaled more large increases ahead as it aggressively tries to curb the highest rates of inflation in three decades.
American investors were particularly active in buying warehouses and offices in large European cities such as Germany's Hamburg and Berlin and in Singapore in Asia.
Factoring in Currency Shifts
A strong dollar is a factor in investing in commercial real estate overseas, but only in certain situations, Peter Merrigan, CEO of Boston-based Taurus Investment Holdings, told CoStar News. Taurus last month announced plans to accelerate its global expansion and establish a new subsidiary in the United Kingdom as part of that strategy.
"Dollar strength is attractive if you think it’s going to weaken again by the time you exit, and I wouldn’t make that assumption now,” Merrigan said in an email. “It’s all relative. We focus on long-term commitments to multiple currencies and do not repatriate the capital.”
The U.S. dollar is trading at its highest level in roughly 20 years relative to the euro and other world currencies, according to the Federal Reserve's Nominal Broad U.S. Dollar Index. That means Americans and U.S.-based companies can buy more overseas than in recent years.
"If you look at the European market, there still seems to be a healthy level of capital looking on the equity side for opportunities," Stuart Rothstein, CEO of Apollo Commercial Real Estate Finance Inc., told investors during Apollo's most recent earnings presentation. Nearly half of Apollo's loan portfolio is backed by European properties.
Office properties attracted almost half of the global outbound capital across North America, Europe and Asia-Pacific, followed by industrial and multifamily properties, CBRE said.
London attracted the most investment in the six months of any city at just under $10 billion, largely from Asian investors looking to buy trophy office properties.
North American investors heavily targeted Germany, with Hamburg, Berlin, Dusseldorf and Frankfurt attracting investments totaling $5.2 billion through June 30.