U.S. Exceptionalism Creates Diversification Opportunity for European Investors

Stronger Economic Growth and Faster Recovery from Downturns

• The U.S. economy consistently outperforms Europe in terms of growth and recovery.
• U.S. economic performance is supported by strong consumer spending and fiscal policies.
• This outperformance extends to U.S. private real estate specifically, showing a robust track record over decades.

The U.S. GDP grew by over 12% since 2019, while the Euro area saw growth of only about 5%. The economic growth in the U.S. was supported by the ~$5 trillion in fiscal stimulus, and enhanced disposable income, making the pandemic-era recession the shortest in U.S. history. In contrast Europe’s slower recovery following the pandemic has been exacerbated by energy crises and lower consumer spending.

Supported by the strong economy U.S. private CRE has outpaced other major asset classes over the last 40+ years on a risk-adjusted basis, due in large part to its strong income component. At ~1.2, U.S. private real estate’s return/risk ratio exceeds not only that of European and Asian private real estate, but U.S. and global equities as well.

More Favorable Demographics

• The U.S. population is younger and growing faster than other developed and emerging markets, supported by higher immigration.
• The U.S labor force is expected to keep growing for the rest of the century, in stark contrast to Europe, where it is already shrinking.
• This demographic profile of the U.S. is significantly benefiting its real estate market.

The higher birth rates and substantial immigration into the U.S. strengthens its demographic profile, particularly when comparing to Europe but now also China. These dynamics create ongoing demand for real estate in the housing, retail, office, and industrial sectors. By contrast, many European countries are grappling with declining and aging populations and slower growth.

Europe’s workers had 95% of the productivity of their American counterparts in 1995. Today, however, that number has fallen to less than 80%, according to a study published by the European Commission.

More Innovation, More Dynamic

U.S. continues to be the leader in research, innovation and technology applications.

• According to the EC study, all six of the world’s most valuable companies in the U.S. – all of which are worth more than $1 trillion - have been created in the last 50 years. By contrast, no European company valued at more than $100 billion has been started in that period.
• The U.S. is home to 22 of the 50 companies with the biggest research and development budgets. Europe has 12.
• Roughly a third of startups founded in Europe since 2008 that grew to be valued at $1 billion or more left the bloc with the majority coming to the U.S.
• U.S. currently dominant in AI research, expected to lead to a new technological wave akin to industrialization and the advent of the internet - Over 70% of AI models built since 2017 are from the U.S. 15% come from China.
• U.S. tech firms lead the world in generative AI innovation; by GenAI patent count, 6 of the top 7 firms are U.S.-based, according to IPWatchdog.

Largest, Most Diversified RE Market

• The U.S. real estate market is the largest and most diversified globally.
• A well-developed financial and debt market makes U.S. real estate highly liquid.
• Providing investors with opportunities at scale and risk diversification across property types and markets under the same legal and regulatory regime.

The U.S. commercial real estate market had a total capitalization of $22.5 trillion by 2023, as per the Federal Reserve. This provides investors with a broad range of investment opportunities across different sectors, asset classes and geographies, and allows for highly diversified investing in line with investors’ individual risk appetite, which is particularly beneficial in volatile economic times.

Moreover, the U.S. real estate market is highly liquid compared to other markets, particularly Europe and emerging Asia. High transaction volumes make it easier for investors to enter and exit investments.

Clear and Unified Investing Framework

• A homogenous legal and tax system in the U.S. for accessing the world’s largest market.
• Providing for transaction security and assurance of property rights.
• One currency access to largest global economy - USD is most traded currency globally, making conversion and hedging seamless.

Unlike Europe, where each country has its own set of regulations, taxes, and legal practices despite some advancements in EU integration, the U.S. offers a consistent legal environment with strong property rights protections. This consistency reduces the complexity and risks associated with cross-border investments, making the U.S. an attractive destination for European investors. In recent years, U.S. regulations have improved access particularly for foreign institutional investors under the Qualified Foreign Pension Fund regulation, providing a level playing field.

Bottom Line

Investing in U.S. private CRE presents a compelling opportunity for international and particularly European investors. The U.S. market benefits from strong demographic trends, robust economic growth, a large and diverse market, a clear legal framework, and an open environment for international capital. The depth and liquidity of the U.S. market further enhance its appeal, allowing large-scale investments that can provide strong risk-adjusted returns.