Cross-regional flows between North America, Europe and Asia-Pacific totaled $30.5 billion in the first half of 2023. The figure represents a year-over-year decrease of 52%, according to CBRE’s Global Real Estate Capital Flows H1 2023 Report.

The fundamentals driving the decline should be familiar: Increased interest rates, softer real estate fundamentals and different pricing expectations between buyer and seller. CBRE analysts pointed out that the decline could also be attributed to “less North American capital flow to Europe” due to high interest rates, economic uncertainty and constrained debt markets.

Inflows Decreases – Except in North America

Overall, Europe’s capital inflows declined by two-thirds from the previous year, ending at $14.7 billion. “(This) is notable because the region is the largest recipient of cross-regional investment by a wide margin,” the CBRE analysts commented. Europe’s inflows totaled $45.9 billion during H1 2022.

International capital inflows to the Asia-Pacific region (APAC) decreased by approximately one-third, from $6.05 billion in 2022 to $4.06 billion in 2023. Despite this, Japan received “relatively strong volume from North America, with help from positive carry, more favorable exchange rates and lower finance costs.

Interestingly, cross-regional investment in North America increased 5% year-over-year, from $11.2 billion in 2022 to $11.75 billion in 2023. Major acquisitions behind this number included:

• Singapore-based GIC’s $14 billion buyout of STORE Capital in partnership with Oak Street Real Estate Capital Partners

• Japan’s Mori Trust Co. Ltd.’s $2 billion deal with SL Green to acquire a 49.9% interest in New York City’s 245 Park Avenue

New York, Los Angeles, Dallas and Charlotte were highly targeted markets by foreign investors. Meanwhile, cross-regional capital inflows to Canada totaled $2.2 billion, marking its highest half-year total ever. More than 90% of these inflows came from Singapore, with investments mainly targeted in Calgary, Montreal and Toronto.

Industrial the Favored Property Type

Global investors targeted industrial and logistics properties during the first half of 2023, resulting in $10.8 billion in cross-regional purchases. Industrial and logistics transactions accounted for a 37% share of total cross-regional volume. Of the $4.8 billion invested in North American industrial and logistics properties, $303 billion came from Singapore investors.

In other sectors:

• Cross-border investments in retail increased by 20% year-over-year, mainly attributed to the GIC $14 billion buyout of STORE Capital REIT. According to CBRE analysts, retail carries higher cap rates. Therefore, “future cap rate expansion is expected to be less than other sectors.” As a result, cross-regional investments exceed pre-pandemic levels in the near to mid-term.

• Though cross-regional inflows to multifamily declined 40% year over year, CBRE analysts point to continued high investor demand amid housing affordability issues, increased household formation and decreasing new development.

• Cross-regional office sector investment declined by 80% year over year, with Europe accounting for much of the decrease. Still, analysts indicated that office fundamentals in Europe remain strong. Meanwhile, cross-regional investments in the North American office sector “was limited in H1,” while investments in the APAC office sector dropped 69% year over year.