US No Longer Leads the World in CRE Investment
“The social safety nets of European countries can look more expensive, but in a time of crisis, they can also help investors understand how economic losses will be distributed."
The United States is no longer leading the rest of the world for commercial real estate investment and the numbers for July suggest that this trend will not reverse any time soon, according to a report by Real Capital Analytics.
Simply put, the high COVID-19 infection rate in the US from is the reason for the decline, with the number of daily deaths from COVID-19 10 times greater than those in the European Union.
Just as the US fell into a recession in March, Europe began to move ahead in deals. According to the report, “US investment volume for deals priced $10 million and greater slipped behind those in Europe by $19 billion.”
In his analysis of the decline, Jim Costello, senior vice president at Real Capital Analytics, wrote that investors are facing greater uncertainty around “underwriting future income trends for a property” because of the new coronavirus.
“The social safety nets of European countries can look more expensive, but in a time of crisis, they can also help investors understand how economic losses will be distributed,” Costello wrote.
The report states that in under normal circumstances, the US is the world’s “most liquid region” for commercial real estate activity. However, in the second quarter of the 2020, Europe moved past the U.S. as a “hub for investment.”
For context, the last time commercial real estate deals in Europe were higher than those in the US was during the global financial crisis, Costello wrote.
“A single large entity-level transaction boosted quarterly European deal activity ahead of that of the US in late 2017, but otherwise the U.S. has been a larger investment market,” Costello wrote.
The early figures for July show a double-digit decline in the number of commercial real estate deals in the US. However, deal volume for July is projected to be more than $10 billion. In 2009, the last recession, deal activity averaged around $6 billion per month for the whole year and was closer to $5 billion for July.
“So while conditions in the US are poor, as of yet, investment activity is not as bad as the last downturn,” Costello wrote
Still, he continued, “the commercial real estate data suggests that there is less confidence in the US at the moment.”