As the “degree of difficulty” in finding attractive real estate investment opportunities increases, foreign investors are losing their appetite for U.S. real estate. According to the results of a survey released today, members of the Association of Foreign Investors in Real Estate said that while overall spending will increase both globally and in the U.S., they will reduce the U.S. percentage of their total global real estate acquisitions from 71 percent in 2004, to 55 percent in 2005, and invest a greater percentage of their portfolios in an ever-widening global arena that includes Japan, Eastern Europe and Australia.
The 13th annual survey was conducted by Kingsley Associates among AFIRE members who collectively have nearly $300 billion invested globally.
Nearly 60 percent of survey respondents this year said that it has become “very difficult” to find attractive real estate opportunities in the U.S. In 2003, only 38 percent of respondents said it was very difficult, and in 2002, only 32 percent said it was very difficult.
“It has been a challenging market, particularly for organizations like ours which are committed to offering both stable rates of returns, and the ability to sell in the future at a profit,” said Steve Zoukis, partner, Jamestown, a German, closed-end real estate fund with U.S. assets of $4.375 billion, and the association’s newly elected chairman of the board. “However, I believe a significant part of the capital wave will remain invested in real estate, since some of the drivers are long-term phenomena, and the U.S. remains of great interest to investors around the world,” he said.
“The transparency, openness, and liquidity of the marketplace, as well as its huge size, continue to attract large amounts of foreign capital,” he said.
This doesn’t mean foreign investors in real estate intend to pull out of the U.S., AFIRE’s chief executive James Fetgatter said. The U.S. continues to rank as the number one country for stable and secure real estate investments. However, in an increasingly global market, investors are looking into new opportunities.
Washington, D.C., continues to rank as foreign investors’ top global city and the best city for investment in U.S, Fetgatter said.
For the first time since the survey was conducted in 1992, cities in southeastern Florida were among the top five U.S. cities for foreign investors’ dollars. Miami/Ft. Lauderdale/West Palm Beach took fifth place following Washington, D.C., New York City, Los Angeles and San Francisco.
For the second year in a row, multifamily and retail properties, tying for top rank, remain foreign investors’ preferred properties for investment. Office properties, which were in fourth place in 2004, were second-ranked, their best showing since 1999, when they took first place. Hotels and industrial properties were ranked third and fourth place, respectively.
After the U.S., the UK and France were regarded as the countries providing the most stable and secure real estate investments. The top three new EU countries targeted for investment are The Czech Republic, Poland and Hungary. Survey respondents said they would be shopping primarily for retail (78 percent) and office (72 percent) properties in these countries.
Tokyo was named one of the three top global cities for real estate investment, taking third place after Washington, D.C., and London. Japan was also the second ranked country in terms of the potential for capital appreciation, and survey respondents believe that Japanese investors, who had been predominant players during the late ’80s, will be the third most active buyer of U.S. real estate in 2005, following Germany and Australia.
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