Though cross-border investment in U.S. commercial real estate has tapered off since 2015, renewed interest from foreign buyers reversed course in the third quarter, with Canadian investors leading the charge.

Cross-border investment increased 61% to $62B in Q3, the highest amount recorded since Q3 2015, according to Cushman & Wakefield's Q3 Capital Markets report.

Not only do Canadian buyers account for the largest dollar amount of foreign capital moving into the U.S., but without Canada’s capital injection, foreign investment activity during the period would have stalled, Real Capital Analytics reports.

Canadian buyers accounted for 41%, or more than $31B, of total cross-border transactions for the past 12 months through Q3 2018, according to RCA.

“Money coming from Canada and Europe of late and particular deal types have driven a lot of activity. [Investors are] not just buying one building at a time, but buying whole companies at a time,” Real Capital Analytics Senior Vice President Jim Costello said, noting deals like Brookfield Property Partners' $9.25B acquisition of retail REIT GGP and Unibail-Rodamco’s $16B acquisition of Westfield.

Prominent Canadian investors active in U.S. property markets include Brookfield Asset Management, the Canada Pension Plan Investment Board and the Ontario Municipal Employees Retirement System.

“Today’s motivation for investors looking to gain access to operating companies is for the purpose of holding onto them for the long-term,” Costello said. “[Unibail-Rodamco and Brookfield] noted ... they both plan to put many more millions of dollars into renovating and expanding experiential retail into these malls … Retail has gained a lot of interest this year.”

In terms of attractive property types receiving the most attention from foreign buyers, RCA reports retail investments jumped 739% year over year (largely due to the GGP and Westfield deals) to $25.6B in the 12 months through Q3; industrial investments skyrocketed 100% to $11.4B year over year during the same period. Beyond retail and industrial, transaction volumes in other sectors fell — central business district office down 24% to $12.4B, suburban office down 18% to $8.6B, and hotel investment down 16% to $5.4B.

China Edged Out

Canada bumped China as the leading U.S. foreign investor last year, largely due to the pullback in Chinese overseas investments as the government cracks down on capital leaving the country. China is now the fourth-largest foreign investor in the U.S., accounting for $5.8B in investment so far this year.

France came in second at $8.7B in total transactions, according to RCA data, with Singapore coming in third and Germany fifth at $7.4B and $4.9B in total transaction volume for the 12 months through Q3, respectively.

“Even though China is pulling back generally, they’re still the fourth-largest cross-border investor. It’s a sizable amount,” Costello said. “You strip them out and ahead of them is Singapore. Also in the top 10 we have Hong Kong, Japan and South Korea.”

Cushman & Wakefield reports foreign investment activity accounted for a large portion of overall transaction volume in the third quarter, with Q3 2018 investment activity outpacing every quarter since Q4 2015. In its Q3 Capital Markets report, C&W reports transaction volume was up 25% quarter to quarter and 21% year over year, totaling $357B year to date.

“Activity during 2018 to date is largely attributable to cross-border M&A, notably the GLP management buyout in the first quarter of the year, the Unibail-Westfield merger in the second quarter and the Brookfield-GGP buyout in the third,” the report states.