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American tech giants race to buy real estate

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Google, Amazon, and Facebook are buying and selling commercial real estate such as offices and retail space.

Owning a mountain of cash makes America’s largest technology businesses find ways to spend it effectively. Therefore, these giants are buying a lot of commercial real estate.

Last week, Google announced it would buy an office building in Manhattan for $2.1 billion. This is the latest in a string of “blockbuster” real estate transactions by big businesses since the beginning of the pandemic. Last year, Amazon retail empire paid $978 million for the Lord & Taylor building in Manhattan. Similarly, Facebook spent $368 million to own an office building in Bellevue, Wash.

According to S&P Global Market Intelligence, the total value of real estate owned by US public companies is up to $ 1.640 billion, up 38% from 10 years ago and the highest in 10 years.

For a long time, retail businesses like Walmart or chain stores like McDonald’s have owned the stores in which they operate. Big tech companies are now also joining the market, buying offices, data centers, warehouses and even retail space.

Buying real estate is seen as a way for businesses to avoid paying expensive rental fees. Buildings that are selected to be purchased, then built, or refurbished are often available with value. But owning them also poses a risk to the business if the value of the property declines.

Thanks to this wave of transactions, the commercial real estate market is partly boosted in the context of an increase in vacancy rates in office and retail buildings because many investors are not interested. Private funds and real estate funds have raised a large amount of money, but most are hesitant to invest during Covid-19 due to the expectation that prices will fall further. Unlike these entities, many big tech businesses don’t need a mortgage to buy real estate, so they spend more and close deals faster.

There are many factors that create the trend of technology businesses buying real estate. First, these companies are making more money. As the dominant, profitable businesses in the industry, they have accumulated a lot of cash. Kristine Hankins, a professor of finance at the University of Kentucky, said companies are hoarding more cash due to concerns about uncertainties from Covid-19.

According to S&P Global, public companies in the US (excluding financial and real estate businesses), hold about $2.7 trillion in cash and cash equivalents and short-term investments. This figure is 90% higher than the fourth quarter of 2011.

Interest rates are hovering around all-time lows, said Brian Kingston, managing director of real estate at Brookfield Asset Management. Therefore, businesses can get a higher return when buying real estate instead of holding money in low-risk bonds or many other securities.

Meanwhile, office prices have fallen in Manhattan, San Francisco, Chicago and many other major cities during the Covid-19 period, making investment in these properties cheaper than they were 18 months ago.

Duc Minh (Theo WSJ)

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