International real estate investors seek greater risk in U.S.
WASHINGTON – Jan. 24, 2007 – Global real estate investors say their U.S. real estate investment strategies for 2007 and beyond will include properties traditionally considered to have higher risk according to the results of the 15th Annual AFIRE Survey released by the Association of Foreign Investors in Real Estate (www.AFIRE.org). Survey respondents say that “value-added” real estate is expected to comprise 25 percent of their portfolio in 2007, up from 19 percent in 2006. 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 U.S.
“The findings reflect investors’ desire to invest in U.S. real estate despite macro uncertainties and competition from U.S. institutional investors,” added FranAois 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 U.S. market over the next five years will draw on:
• off-market transactions
• the development of joint ventures
• the execution of a broader focus and geographic diversification
Thirty percent of respondents said they would explore new property types as part of their U.S. investment strategy. These include:
• infrastructure
• resorts
• senior housing
• storage
• student housing
• research and science projects
• the acquisition of real estate companies
Big Apple bobs to top
For the first time since 2001, when it shared the number one spot with Washington, DC, New York has emerged as foreign investors’ top U.S. city for their investment dollars. This year, Washington drops from first place into second. Los Angeles, San Francisco and Seattle follow, in order, to round out the top five. San Diego fell from No. 5 last year to No. 9 in the latest survey.
Changes in U.S. 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 by respondents in cross-border real estate investments in 2007, including $250 million in the U.S. In 2006, the median investment was $400 million globally with $200 million targeted to the U.S. “It is significant that for the second year in a row, the portion of the investment targeted to the U.S. has remained consistent,” says Fetgatter.
Global shifts
“The results of this year’s survey manifest the most global viewpoint our members have ever expressed,” said Mark Preston, chief executive, UK and Ireland, Grosvenor, and AFIRE’s newly elected chairman. “The U.S. still remains the strongest and safest conduit for cross-border real estate dollars, by a substantial margin -- 63 percent. But it is clear that our members are taking advantage of some of the opportunities inherent in emerging markets.”
Other results
• While the USA remains the preferred global country for foreign investors’ real estate dollars, only 23 percent of respondents say it has the best potential for capital appreciation, down from 44.4 percent in 2005 and 53.8 percent 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 U.S. has always held the No. 1 spot, but this is the narrowest margin (5 percent) between first and second place in the survey’s history. With 15 percent 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.
• While London remains the top global city for cross-border real estate investment, New York regains the No. 2 two spot, rising from third place in 2005 and fourth place in both 2004 and 2003. Washington, DC, which has held the No. 1 or No. 2 spot globally since 2002, falls into fourth place. Paris climbs from fourth place to third, and Tokyo maintains the fifth spot.
• In terms of global appeal, the survey shows significant upward movement for Munich, moving from number 21 in 2005 to seven this year; and Stockholm moves 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 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 U.S. real estate, displacing Germany, which held the number one spot since 1999.
Portfolio compositions: global and U.S.
Not surprisingly, both globally and in the U.S., office buildings are the mainstay of respondents’ portfolios.
• Respondents hold a slightly higher percentage of office buildings in the U.S. (56 percent to 50 percent) than they do globally.
• They hold a slightly higher percentage of retail globally than they do in the U.S. (22 percent to 18 percent).
• Both globally and in the U.S., respondents say multi-family comprises 12 percent of their portfolio.
The Center for Real Estate, University of Wisconsin, conducted the survey of AFIRE members.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
