Foreign investors in real estate committed to U.S. opportunities

WASHINGTON – Jan. 19, 2010 – Despite a lack of placement opportunities in 2009, foreign investors in real estate say they remain committed to the U.S. as their preferred real estate investment opportunity.

The sentiment is underscored by a dramatic increase in the number of respondents identifying the U.S. as the country providing the best opportunity for real estate capital appreciation, according to the results of the 18th annual Association of Foreign Investors in Real Estate (AFIRE) survey.

The survey was conducted in the fourth quarter of 2009 among the association’s nearly 200 members. Survey respondents own more than $842 billion of real estate globally including $304 billion in the U.S. The survey was conducted by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

In this year’s survey:

• Fifty-one percent of respondents identify the U.S. as providing the best opportunity for capital appreciation;
• This compares to 37 percent in 2008, 26 percent in 2007, and 23 percent in 2006;
• The last time respondents’ perceptions for U.S. real estate were this strong was in 2003, when the percentage once again reached 51 percent;
• The U.K. emerges as the second-best country for capital appreciation, receiving 30 percent of respondents’ votes;
• In third place, China receives 10 percent of respondents’ votes.

“Although foreign investors expressed every intent to resume investing in 2009, like everyone else, their plans were sidelined by a paralyzed marketplace with no precedent and limited investment opportunities,” said Werner Sohier, senior portfolio manager real estate, PGGM and AFIRE’s newly elected chairman. “However, new money is becoming available and the AFIRE survey points to an increased focus and interest in a few select markets for 2010, especially London and in the US, where prospects appear to be brightening.”

According to survey results:

• Two thirds of respondents plan to increase their investment in the U.S. in 2010 compared to 2009;
• Investors say they plan to increase U.S. allocations above 2009 levels by 62 percent for equity and 83 percent for debt; at least half the survey respondents report a stronger appetite for both debt and equity investments in the U.S. than in other countries;
• Plan for global equity investment in 2010 exceed plans for 2009 by 46 percent; 2010 plans for global debt are 20 percent lower than planned for 2009;
• By the middle of the fourth quarter of 2009, foreign investors placed only 62 percent of planned debt allocations and 43 percent of planned equity allocations globally; in the U.S. they placed only 35 percent of planned debt allocations and 23 percent of planned equity allocations;
• As a portion of global real estate, U.S. 2010 allocations for debt represent 80 percent of the global pool; allocations for equity represent 49 percent.

Other U.S. trends

Among U.S. cities representing the best investment opportunities, survey respondents firmly select Washington, D.C. and New York, receiving much stronger scores than third-place San Francisco.

This year, Boston makes a significant climb into fourth place, and Los Angeles falls one spot into fifth place. As they did last year, survey respondents also express a firm interest in multi-family as their preferred property type followed by office, industrial, retail and hotel properties.

“This is the second year in a row in which multi-family topped investors’ product preference,” said James A. Fetgatter, chief executive, AFIRE. “More notably, the gap between the top preference and the least-favored product, hotels, has not been this wide since 2000.”

Survey respondents have also pushed their projections for the recovery of the U.S. commercial real estate market back by six months:

• In the June 2009 mid-year survey, half the respondents said they expected recovery by or before the second quarter of 2010;
• In the 2010 annual survey, half the respondents say they expect the recovery by or before the fourth quarter of 2010. But, optimism about the state of the U.S. real estate market remains strong:
• Thirty-three percent of survey respondents say they are more optimistic about the U.S. real estate market than they were in June 2009;
• Sixty-three percent say their perspective has not changed;
• Six percent say they are more pessimistic.

Global Trends Globally three cities emerge as clear targets for investors’ real estate dollars:

London surges into first place with a significant lead over both Washington and New York in second and third places respectively; Paris and Tokyo place as distant fourth- and fifth-place cities;

The United States remains the country selected as the “most stable and secure real estate investment environment,” although with a declining lead:

* The U.S. receives 44 percent of the vote; Germany receives 21 percent; and Canada receives 14 percent.

This year, the percentage of respondents selecting the U.S. as the most “stable and secure country” falls from 53 percent in 2008 and 57 percent in 2007. This is the first time that the U.S. has fallen below 50 percent in the survey’s history.

“The financial crisis of the past year has obviously affected investors’ perceptions of U.S. real estate as ‘stable and secure,’” explains Mr. Fetgatter. “However, it is also apparent that opportunity lies within this instability since the U.S., along with the UK, show substantially higher scoring for expected capital appreciation.”

© 2010 Florida Realtors®