The U.S. real estate market is improving, at least for foreign investment dollars, according to the Association for Foreign Investment in Real Estate, or AFIRE.
As the fear of a double-dip recession has faded, investors are becoming more enthusiastic about the prospects for the U.S. economy and are taking aim at real estate investment opportunities in the U.S., said James A. Fetgatter, chief executive of AFIRE.
The Washington, D.C.-based association today released the results of its 19th Annual Survey, which was conducted in the fourth quarter of 2010 by the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business.
According to Kathryn Hamilton, spokesperson for AFIRE, the survey was conducted among association members.
There are over 180 AFIRE members representing 21 nations. Members that responded to the survey hold more than $627 billion of real estate globally, including $265 billion in the U.S., Hamilton said.
More than 60 percent of respondents indicated that the U.S. offers the best potential for capital appreciation, which is the highest positive response to this question since it was first asked in 2000. This number is a dramatic reversal from 2006 when it reached its recorded low of 23 percent. Of the respondents, 72 percent said they plan to invest more capital in the U.S. in 2011 than they did in 2010.
Fetgatter pointed out that much of this increased investment in the U.S. market is concentrated in two major cities.
Except for multi-family housing, they (investors) are not scattering their interest throughout the U.S., but rather narrowly targeting it to New York City and Washington, D.C., to an even greater extent than in previous years, he said.
According to AFIRE, New York City has now replaced London as the number one choice for foreign investors in real estate in 2011. Indeed, London, which has ranked as first or second choice since 2001, fell to third in this ranking, with Washington, D.C. moving into the second slot. Paris came in fourth, Shanghai fifth, followed by Singapore, Hong Kong, Madrid, Sydney and Los Angeles.
AFIRE Chairman Ian Hawksworth said that, while London was the first real estate market to recover from the downturn and is still very active, it is not surprising that London has dropped to third place as investors expand their search to higher yielding markets such as U.S. gateway cities that offer attractive risk adjusted returns.
Hawksworth added that, compared to 2010, there is definitely a broadening of interest among emerging markets. For those who were risk averse last year, China seemed a safe harbor for emerging market investments. But, for now at least, investors have become more comfortable diversifying into other emerging markets.
According to the survey, for real estate investment, the number one emerging market is Brazil, followed by China, India, Vietnam and Mexico. All but Vietnam were in the top five emerging markets for real estate investment last year. Vietnam was unranked last year.
Although foreign real estate investors are looking at the U.S. for 2011, AFIRE noted that many investors have yet to put their dollars where their stated interests are, with actual transactions in 2010 barely above 2009 levels.