Foliage Instance Static Meshes do not affect the Navmesh. I tried changing the Custom Navigable Geometry to 'Yes' & 'Even if Not Collidable' but got the same results.
Repro Rate: 4/4
Tested this in //UE4/Release-4.27 @ CL#18319896 and the issue also occurred there, it is not a regression.
Results: Navmesh is not affected by the Foliage Instanced Static Meshes
Expected: Navmesh is affected by the FISMs, matching the modified cutout as if the object was placed down as a Static Mesh.
There's no existing public thread on this issue, so head over to Questions & Answers just mention UE-150147 in the post.