Global capital is increasingly at the behest of currency fluctuations, with a strong greenback a key factor
Insight
25 September 2024
Why real estate investors are watching the dollar
The U.S. dollar’s rise in strength this year is having an impact on how global real estate investors approach the market.
The greenback reached a 34-year high against the Japanese yen in April and has risen against the depreciating euro and UK pound since last year. Analysts at both JP Morgan and Goldman Sachs expect the dollar’s strength against other major currencies to remain for some time.
In the UK, several deals have taken place this year involving U.S. investors galvanized by a strong dollar. Starwood Capital made a $884 million offer for Balanced Commercial Property Trust, a listed UK REIT. Leaf Living, a joint venture between Regis and Blackstone, this year forward funded $740 million in UK single family housing.
“Currency fluctuation has a significant impact on real estate investors engaged in cross-border investments,” says Mattias Baggfelt, Head of JLL Debt & Financial Advisory Sweden at JLL. “The strength of the US dollar is just one element at play.”
When compared with around a year ago, the currency situation for most international investors investing in the UK, for example, is more favorable or neutral now, apart from for Canadian investors, adds Baggfelt.
On the flip side, owners’ interest is often piqued if currency fluctuations aren’t on their side. Baggfelt notes that investors with pre-determined exit strategies can find themselves in a pinch if demand shifts due to a lack of foreign buyers.
Investors “who may have been late cycle buyers in 2019, with a five- or six-year exit strategy, may today need to consider when actually might be optimal to divest”, says Baggfelt.
Getting the timing right is also a factor for sellers when considering when best to repatriate proceeds from a sale.
“When the local, home currency is weaker, converting foreign currency proceeds can of course result in higher returns for a seller,” he says. For example, Japanese investors invested in the UK have gained a lot over the past four years, “However, since the summer, the yen has started to appreciate, so this might be the right time to move”.