U.S. CRE Holds Foreign Investors’ Attention


Nearly all foreign investors surveyed–95 percent–plan to maintain or increase their investment in U.S. commercial real estate this year, the Association of Foreign Investors in Real Estate reported.

Top U.S. cities among foreign investors include New York, Los Angeles, Boston, Seattle and San Francisco, AFIRE said. Top five global cities are New York, Berlin, London, Los Angeles and San Francisco.

Washington, D.C. fell out of favor both globally and domestically, AFIRE said. It dropped from the list for the first time since 1992. But some say Washington could return as an investor favorite.

“Washington, D.C. is a global gateway city with good leasing activity and a growing economy bolstered by a young workforce,” said Catherine Pfeiffenberger, Senior Vice President with Skanska USA Commercial Development. “The combination of those stable fundamentals will continue to attract capital from around the world.”

Pfeiffenberger noted that the upcoming Trump administration’s focus on defense and aerospace industries could also benefit Washington-area investment in near future.

The U.S. remains the country with the most stable and secure opportunities for real estate investment and the best capital appreciation opportunities, AFIRE said. Overseas investors cited the country’s “sustainable” economic growth, strong rule of law, transparency and relative overall security for investments. More than half said Britain’s vote to leave the EU would benefit U.S. commercial real estate.

Despite investors’ intentions, one-third of respondents called their sentiment about the U.S. market more pessimistic than a year ago while only 6 percent considered themselves more optimistic. Nearly two-thirds reported an unchanged opinion. Last year 8 percent said they felt more pessimistic, 8 percent felt more optimistic and 85 percent reported an unchanged opinion.

“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,” AFIRE CEO James Fetgatter said. “The 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.”  

U.S. industrial properties edged out the multifamily sector as the preferred property type for foreign investment; hotels remain the least-favored property type, AFIRE said. While core properties predominate as foreign investors’ investment strategy, more than half reported plans to increase both value-add and opportunistic allocations in 2017. 

Similarly, foreign investors cited several new cities including Nashville, Tenn., Portland, Ore., Charlotte, N.C. and San Antonio, Texas as smaller urban markets with strong investment potential.