WASHINGTON – Jan. 4, 2017 – The world's the largest international institutional real estate investors plan to boost their U.S. investing this year, with 95 percent of respondents in a new survey saying New York City remains at the top of their list.
The survey of Association of Foreign Investors in Real Estate (AFIRE) members ranked New York No. 1 for the seventh year as the number one U.S. city among foreign investors. AFIRE members have an estimated $2 trillion or more in real estate assets under management globally. The survey was conducted in the fourth quarter of 2016 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.
Among foreign investors, the top five U.S. cities are New York, Los Angeles, Boston, Seattle, and San Francisco. The top five global cities are New York, Berlin, London, Los Angeles, and San Francisco.
Globally and domestically, however, Washington, D.C., has fallen out of favor, and for the first time since the survey began in 1992, it dropped off investors' top five U.S. city list – and it has not been among the top five global cities since the 2013 survey.
With concerns about Brexit fallout on investors' minds, London, which had been ranked either first or second among global cities for the last five years, slipped into third place. In terms of its potential to offer stable and secure real estate investments opportunities, the U.K. slipped into fifth place.
The US: A strong market but not without concerns
By wide margins, the U.S. continues to rank as the country offering the most stable and secure opportunities for real estate investment, and the country that provides the best opportunity for capital appreciation. Investors cited the country's sustainable economic growth, strong rule of law, transparency and relative overall security for investments.
More than 50 percent of survey respondents said Brexit would have a positive effect on the U.S. real estate market.
Despite overall investment intentions, however, 33 percent of respondents said their sentiment about the U.S. market is more pessimistic; 60 percent felt their opinion was unchanged, and only 6 percent considered themselves more optimistic. In last year's survey, 8 percent felt pessimistic, 85 percent had an unchanged opinion, and 8 percent felt optimistic.
"As uncertainty rises with a new government in Washington and interest rates that have risen dramatically, it is no surprise that investors have signaled a note of caution," says James A. Fetgatter, chief executive officer, AFIRE. "Previous, comfortable spreads between cap rates and interest rates have narrowed making the investment criteria more selective and difficult. Increased market research and discipline will be required."
U.S. investment market broadens
Industrial property edged out multifamily to take first place among property types, and hotels remain the least favored property type.
While "core" properties predominate as an investment strategy, more than half of survey respondents report plans to increase both value-added and opportunistic allocations in the coming year. Similarly, several new cities were cited for their investment potential as smaller urban markets with strong job growth and young, affluent populations. They include Nashville, Portland, Charlotte, San Antonio, Madison and Pittsburgh.
For the second year in a row, Berlin ranked among the top five global cities, moving to second from fourth place last year. Germany retained its second-place ranking in terms of providing stable and secure investment opportunities; it ranked third in terms of countries offering the best capital appreciation.
In terms of providing an opportunity for capital appreciation, Australia joined the ranks in fifth place. China, Mexico, Brazil, India and Chile were again named as investors' top five emerging markets, although their order shifted from last year.
Top five U.S. cities
1. New York (#1 last year)
2. Los Angeles (#2 last year)
3. Boston (#5 tied with Seattle last year)
4. Seattle (#5 tied with Boston last year)
5. San Francisco (#3 last year)
Ranking of U.S. property types
1. Industrial (#1 tied with multifamily last year)
2. Multifamily (#1 tied with industrial last year)
3. Office (#4 last year)
4. Retail (#3 last year)
5. Hotel (#5 last year)
Top five global cities
1. New York (#1 last year)
2. Berlin (#4 last year)
3. London (#2 last year)
4. Los Angeles (#3 last year)
5. San Francisco (#5 last year)
Most stable and secure countries for real estate investment
1. U.S. (#1 last year)
2. Germany (#2 last year)
3. Canada (#4 last year)
4. Australia (#5 last year)
5. U.K. (#3 last year)
Countries with the best opportunity for capital appreciation
1. U.S. (#1 last year)
2. Brazil (#2 last year)
3. Germany (tied with the UK this year; #7 last year)
4.U.K. (tied with Germany this year; #4 last year)
5. Australia (unranked last year)
Top emerging countries
1. China (#2 last year)
2. Mexico (#3 last year)
3. Brazil (#1 last year)
4. India (#5 last year)
5. Chile (#3 last year)
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