Inbound and Outbound U.S. Capital Flows
Global Investment Trends
The cost of hedging against U.S. dollar depreciation is rising worldwide, reducing effective yields for many foreign investors, despite the continuing attractiveness of the U.S. market in growth and liquidity terms. Inbound capital flows have eased in the past 24 months, providing more opportunities for domestic investors.
Annual Cost of Hedging Against US$ Depreciation
Hedging against currency risk is not always a drag on IRR. For every currency pair, the cost of capital flowing in one direction is a gain for capital flowing the opposite direction.
Annual Impact by Currency Pair
*Direction of arrow represents buyers’ home currency. Arrow point is the currency in which the asset is denominated. For example, euro investors wishing to hedge against FX risk must factor in an additional cost (+) of 3.3% when purchasing dollar-denominated real estate, while US$ investors gain (-) an extra 3.3% return when purchasing euro-denominated real estate.
Note: Chatham Financial provided all hedging-cost data used in this report.
Inbound Capital to U.S. (includes all property types)
Highest Outbound Capital from the U.S. (includes all property types)
Higher hedging costs are fueling increased interest in secondary and tertiary markets where yields are higher. Supply, pricing, demographic shifts and other factors also weigh heavily in market selections.