NYC set to be big winner as London and Washington DC slip


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Ninety-five per cent of the respondents to a survey among members of the Association of Foreign Investors in Real Estate (AFIRE) say they intend to maintain or increase their investment in the US.  

New York City is in its seventh year as the number one US city among foreign investors and is in its third year as top global city.

Both globally and domestically, Washington DC has fallen out of favour. For the first time since the survey began in 1992, it has dropped from the list of investors’ top five US cities. It has not been among the top five global cities since the 2013 survey, and dropped in rank again – from eighth place last year – to fifteenth this year.

With concerns about the effects of Brexit 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 UK slipped into fifth place.

Among foreign investors, the top five US 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.

By wide margins, the US continues to rank as the country offering the most stable and secure opportunities for real estate investment and the country providing 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 per cent of survey respondents said Brexit would have a positive effect on the US real estate market.

Despite investors’ investment intentions, 33 per cent, or one third of respondents said their sentiment about the US market had become more pessimistic; 60 per cent felt their opinion was unchanged, and only 6 per cent considered themselves more optimistic. In last year’s survey, 8 per cent felt pessimistic, 85 per cent had an unchanged opinion, and 8 per cent 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.”

Industrial property edged out multifamily to take first place among property types; hotels remain the least favoured 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, including Nashville, Portland, Charlotte, San Antonio, Madison, and Pittsburgh, representing smaller urban markets with strong job growth and young, affluent populations, were cited as having investment potential.

“Washington, DC is a global gateway city with good leasing activity and a growing economy bolstered by a young workforce. The combination of those stable fundamentals will continue to attract capital from around the world,” says Catherine Pfeiffenberger, AFIRE chairman and senior vice president of Skanska USA Commercial Development. “The new administration’s focus on the defence and aerospace industries is also expected to benefit the DC area in the coming years.”

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.

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