This piece of the US real estate market is flashing a warning sign

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For the first time in seven years, overseas investors in office buildings and retail space became net sellers of properties, according to a new report from Real Capital Analytics, which tracks the sector.

This follows a strong 2018, when cross-border acquisition of commercial real estate hit near-record levels.

Insiders are selling stock like it's 2007

“These investors still purchased assets,” wrote Jim Costello, the report’s lead author. “They simply sold more than they bought.”

Direct acquisitions totaled $21.3 billion in the first half of the year, down by more than 40% compared to the same period last year. Meanwhile, sales reached $21.4 billion.

No single region was responsible for the pullback, though China notably slid to No. 9 in the ranking of investors. The country, which has tightened rules on capital outflows, was fourth in 2018 and third in 2017.

The report identified the trend as a “yellow warning sign rather than a red one.”

“It is not a whole class of investors writing off the US,” Real Capital Analytics said. “Rather, the high-ticket price deals that these investors pursue are becoming more challenging.”

A significant portion of investment in the past year comes from Canada, which accounted for 55% of all foreign investment in the sector, the report noted. A big factor is large deals completed by real estate giant Brookfield Asset Management (BAM).

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