New York tops Washington, D.C., survey says! Well, at least among very rich foreign investors and their preference to invest in commercial real estate here.
The survey was conducted by the Association of Foreign Investors in Real Estate, based in–of all places–Madison, Wis.
L.A., San Francisco and Seattle round out the top-five.
The full release after the jump.
– John Koblin
FOR IMMEDIATE RELEASE
Big Apple Bobs to Top Among Foreign Real Estate Investors
Washington (January 24, 2007)–For the first time since 2001, New York has emerged as foreign investors number one US city for commercial real estate, ousting former top contender, Washington, DC to the second place seat. The remaining cities rounding out the leading five in 15th annual survey conducted by the Association of Foreign Investors in Real Estate (AFIRE), include: Los Angeles holding firm in third place since last year; San Francisco also staying the same; and Seattle displacing San Diego in the fifth place seat, up from the ninth spot in 2005 and fifteenth in 2004. The survey reflects the buying preferences of members of the association who collectively own $601 billion of real estate globally, including $184 billion in the US. The survey was conducted among AFIRE members by The Center for Real Estate, University of Wisconsin, Madison.
This year’s survey also found that US real estate investment strategies for 2007 and beyond will include properties traditionally considered to have higher risk. Respondents to the survey say that “value-added” real estate is expected to comprise 25% of their portfolio in 2007, up six percentage points from 2006.
“The findings reflect investors’ desire to invest in US real estate despite macro uncertainties and competition from US institutional investors,” added Francois Ortalo-Magne, Robert E. Wangard Chair in Real Estate, The Center for Real Estate, University of Wisconsin-Madison. “Consequently, they are showing a greater willingness to consider diversification strategies into secondary markets, outside of the core property types, and with creative financing and ownership structures.”
New Measures to Place New Capital
Members say that new measures to place new capital in the US market over the next five years will draw on:
• off-market transactions,
• the development of joint-ventures, and
• the execution of a broader focus and geographic diversification.
Thirty percent of respondents said they would explore new property types as part of their US investment strategy. These include:
• senior housing,
• student housing,
• research and science projects, and
• the acquisition of real estate companies.
Changes in US Property Type Preferences
1. Office buildings (unchanged from 2005)
2. Multi-family (missing first place by a fraction of a point)
3. Hotels (down from number two in 2005)
4. Industrial (unchanged from 2005)
5. Retail (down from number three in 2005)
Investment Levels to Increase
Globally, this year’s survey indicates a median investment of $500 million dollars by respondents in cross-border real estate investments in 2007, including $250 million in the US. In 2006, the median investment was $400 million globally, with $200 million targeted to the US. “It is significant that for the second year in a row, the portion of the investment targeted to the US has remained consistent,” adds James Fetgatter, chief executive of the organization.
• While London remains the top global city for cross-border real estate investment, New York regains the number two spot, rising from third place in 2005, and fourth place in both 2004 and 2003. Washington, DC, which has held the number one or number two spot globally since 2002, falls into fourth place. Paris climbs from fourth place to third, and Tokyo maintains the fifth spot.
• While the USA remains the preferred global country for foreign investors’ real estate dollars, only 23% of respondents say it has the best potential for capital appreciation, down from 44.4% in 2005 and 53.8% in 2004.
• India emerges as the country having the second highest potential for real estate capital appreciation, up from sixth place in 2005. Eighteen percent of survey respondents say real estate in India provides the second best opportunity for capital appreciation. The US has always held the number one spot, but this is the narrowest margin (5%) between first and second place in the survey’s history. With 15% of survey respondents’ votes, real estate in China continues to rank third.
• Among top Asian countries for investors’ dollars, Japan and China remain in the first and second slots. India moves into third from fifth while Singapore falls from third to fourth place to tie with Hong Kong.
• In terms of global appeal, the survey shows significant upward movement for Stockholm, from 29 to eight.
• Among Eastern European countries, Romania appears for the first time among the top five targets for investors’ dollars. The top three Eastern European countries remain the Czech Republic, Poland and Hungary. Survey respondents who are targeting Eastern Europe for real estate investment have allocated an average of $340 million to the region.
• Respondents say they expect Australians to be the top foreign competitors for US real estate, displacing Germany which held the number one spot since 1999.
Portfolio Compositions: Global and US
Not surprisingly, both globally and in the US, office buildings are the mainstay of respondents’ portfolios.
• Respondents hold a slightly higher percentage of office buildings in the US (56% to 50%) than they do globally.
• They hold a slightly higher percentage of retail globally than they do in the US (22% to 18%).
• Both globally and in the US, respondents say multi-family comprises 12% of their portfolio.
AFIRE members have a common interest in preserving and promoting investment in cross-border real estate. Founded in 1988, AFIRE currently has nearly 200 members representing 17 countries. AFIRE is located at 1300 Pennsylvania, NW, Washington, DC; (202) 312-1400. http://www.afire.org.