Foreign property investors put more trust in US cities

For the first time in more than a decade, four American cities have been placed in the world’s top five cities for commercial real estate foreign investment, says a new annual survey.

New York was placed first of the four US cities in the 21st annual survey of members of the Association of Foreign Investors in Real Estate (AFIRE). The UK capital of London was runner up in the cities category – the only non US location included.

It was followed by the American cities of San Francisco, Washington, D.C., and Houston, which was unplaced last year.

In the Emerging Markets category Brazil again headed the list, with China as runner-up and Turkey rising from seventh last year to third this year. India and Mexico came next.

Turkey also did well in the Countries Providing the Best Opportunity for Capital Appreciation, rising from ninth last year to fourth this year. USA headed the list, with 55% of the vote, followed by Brazil, at 17%, and the United Kingdom, which rose one place on last year.

AFIRE’s chief executive Jim Fetgatter tells OPP Connect, “Turkey seems to be attracting more investor attention in the past year, as can be seen from many other real estate news outlets. I can only presume it is a belief that Turkey is an acceptable means of tapping into the Middle East and North Africa market at reasonable risk while achieving higher yields.

“With much of Europe in the midst of a financial crises and worries about China’s growth and overbuilding it can be a viable alternative for capital seeking appreciation.”

The survey of AFIRE’s 200 or so members was carried out by the James A Graaskamp Center for Real Estate, at Wisconsin School of Business. AFIRE members manage an estimated $2 trillion in real estate assets. US-based members make up 42% of investors and 26% of the advisers.
Mr Fetgatter says development opportunities often go hand-in-hand with job creation. "The strong endorsement of both San Francisco and Houston by our members in this year's survey directly reflects the propensity for real estate investment to follow jobs, in this case, technology and energy, which are thought to be among the top drivers of the next economic wave.

"As other economic drivers emerge, it will not be surprising to see investors seek opportunities beyond the traditional New York and Washington, D.C. markets."

Reflecting the rise in the US market, almost 40% of respondents were more optimistic than last year and the majority said their views were unchanged. Few were pessimistic.

An overwhelming 81% planned to increase their US portfolios – with almost a third planning a “major increase”. No-one planned to decrease their investment.

America is seen as the most stable and secure place for real investment opportunities, followed by Canada, Germany, Australia, the UK and Sweden, which was unranked last year.

Mr Fetgatter says Sweden has always scored fairly highly in this section and may have been nudged slightly higher as more investors were looking there recently for real estate investment.
Unlike other surveys, he says that Dubai has never ranked highly in the AFIRE annual members’ poll. “Dubai seems to attract more Middle Eastern capital than the predominately European money that AFIRE represents,” he explains.

New AFIRE chairman, Christoph A. Kahl, chairman of German-based Jamestown US-Immobilien GmbH says, "The dominance of U.S. cities among investors’ Top Global choices, with four of the five being in the U.S., evidences the U.S. as the most transparent, professional and liquid real estate market in the world.

“Particularly as compared to other countries, population growth in the U.S. will be a major driver for long-term capital appreciation and is one of the reasons why the institutional investment community worldwide favors the U.S. for its real estate allocations.”

Europe and China both fell out of favour. China, which was third for price appreciation globally last year, received no votes at all this year. Mr Fetgatter explains, "Everybody is concerned about China's economy slowing, and there's a little uncertainty about the change in leadership.

Shanghai, fifth in the city category last year, was twelfth this year and Hong Kong dropped from eighth to nineteenth place. Around four out of five respondents believed Europe would be in recession in 2013.

Multi-family developments remained the favourite property type with industrial the runner-up, as last year. Retail rose one place and office fell one place with hotels remaining fifth.
AFIRE was founded in 1988 and has almost 200 members in 21 countries.

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