Foreign Real Estate Investors Not Dissuaded by Interest Rates, New Administration

Foreign investors continue to view U.S. real estate as a sound investment, with an astounding 95 percent of those recently surveyed by the Association of Foreign Investors in Real Estate (AFIRE) reporting they plan to “maintain or increase their investment” in 2017. U.S. real estate was ranked No. 1 by respondents for both security and stability, as well as opportunity for capital appreciation.

Foreign investors’ perceptions of U.S. real estate, with the incoming administration and rising interest rates, are overwhelmingly positive: 60 percent of survey respondents reported an unchanged opinion about the market from last year, citing its stability and security. The top five cities for real estate investment this year, according to the survey, are New York, N.Y., Los Angeles, Calif., Boston, Mass., Seattle, Wash., and San Francisco, Calif. 2017 marks New York’s seventh year at the top of the list.

Washington, D.C., notably, slipped from the top five for the first time since 1992—a misleading move, according to Catherine Pfeiffenberger, AFIRE chairman.

“Washington, D.C. is a global gateway city with good leasing activity and a growing economy bolstered by a young workforce,” says Pfeiffenberger. “The combination of those stable fundamentals will continue to attract capital from around the world. The new administration’s focus on the defense and aerospace industries is also expected to benefit the D.C. area in the coming years.”

Investment opportunity in U.S. real estate has widened, according to the survey, with industrial properties moving ahead of multifamily properties as the No. 1 investment type. Multifamily, office, retail and hotel round out the top five. The shift has strengthened foreign investors’ confidence in emerging markets, such as Charlotte, N.C. and Nashville, Tenn.

Fifty percent of respondents, in addition, believe Brexit will be beneficial for U.S. real estate. (London fell to the No. 3 spot globally in the survey, as a result.) The most secure and stable countries this year behind the U.S., according to respondents, are Germany, Canada, Australia and the U.K; the countries with the best opportunities for capital appreciation are Brazil, Germany, the U.K. and Australia.

Impending economic and political changes in the U.S., still, have given some foreign investors pause, the survey shows—a cue for real estate professionals to offer comprehensive data to their investor clients.

“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, CEO of 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.”

Source: Association of Foreign Investors in Real Estate (AFIRE)

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