U.S. interest rate hikes sharply reduced foreign CRE inflows in 2025. Soaring FX hedging costs made dollar-denominated income unattractive for global capital. Transaction data confirms this: Canadian and Japanese institutions were net sellers, with Canada shedding $5B in U.S. assets through midyear . Surveys showed 63% of foreign investors held a negative outlook on U.S. CRE in early 2025 . Sovereign wealth funds trimmed real estate allocations for a third consecutive year . With dollar strength, costly debt, and poor FX-adjusted returns, many stayed sidelined or turned inward — awaiting monetary relief.

With Fed funds expected to fall to ~3% in 2026, capital posture is shifting. Forward rate cuts mean lower hedging costs, directly improving currency-adjusted CRE yields for foreign buyers . Analysts note this dynamic is “reopening” U.S. CRE to pensions and sovereigns long shut out by FX drag . FX volatility has also declined, improving risk-adjusted returns . On the debt side, Treasury yields have eased and spreads remain tight, helping stabilize acquisition underwriting . While inflation remains a variable, easing policy and tighter global spreads are drawing capital back toward U.S. real assets.

Canada and Europe pulled back sharply in 2025 but are now selectively reassessing U.S. exposure as hedging costs fall. Danish pensions, for instance, have increased their hedge ratios on U.S. assets . Middle Eastern sovereign funds, flush with oil revenue, shifted focus to infrastructure and domestic assets amid dollar strength — but with currencies pegged to the dollar and dry powder intact, they are well-positioned to scale up in 2026 . Asia-Pacific investors show growing conviction: Singapore’s GIC raised its U.S. allocation to 39% of its global real estate book , even as others like Japan remained net sellers in 2025. As U.S. policy turns, cross-border capital flows are reactivating — with each region moving at its own speed, driven by yield, volatility, and strategic readiness.