Housing Bubble
Washington, D.C. Named No. 1 City in the World
Foreign investors, who spent more than $242 million buying real estate last year, selected Washington, D.C. as the top city in the world for their investment dollars according to the results of a survey taken among members of the Association of Foreign Investors in Real Estate (AFIRE). Other cities burning holes in foreign investors' wallets include London in second place, followed by Paris, New York and Milan. The district also led the list of the top five U.S. cities which includes New York, Los Angeles, Chicago, and San Francisco in second to fifth places, respectively. The 11th annual survey was conducted by Kingsley Associates among AFIRE members who collectively have more than $226 billion invested globally including $70 billion invested in U.S. real estate.
"For the last two years, Washington has offered a better investment environment than either Paris or London in terms of both liquidity and positive real estate fundamentals," said Denis Epoh, SITQ, a Montreal-based firm which owns several properties in Washington, D.C. "It has outperformed both cities in terms of the total property sales and expected return on investment. It also offers a better trade off between risk and return within a global investment strategy.
"Compared to other U.S. cities, Washington, D.C. has several market characteristics that are perfect aligned with most foreign investors' investment strategies," he added. "Among them are: the most stable market fundamentals in the U.S.; a solid, liquid market with significant depth; supply constraint and attendant rent growth; and an extremely strong employment base. Washington, D.C. will be the only U.S. market that will hold strong real estate fundamentals in 2003 due to the major role played by the government on the demand side, and its affect on the expansion of other sectors."
Foreign Investment Thwarted
In the 2001 survey, members said they planned to invest an average of $282 million in U.S. real estate in 2002; the average actual investment was $242 million, reducing the global allocation of members' investment in U.S. real estate in 2002 by 7.3% compared to 2001 levels. Although investors remain extremely positive about U.S. real estate as a strong investment opportunity, 79% of respondents indicated that it was either 'somewhat' or 'very difficult' to find attractive real estate opportunities in the U.S. today, and 30% said that finding attractive opportunities was the greatest challenge to investing in U.S. real estate today. Nonetheless, investors' planned U.S. acquisitions represent 46% of total global real estate acquisition dollars targeted for 2003, compared to a 36% share in 2002.
Preferred Property Types
"It is very interesting to note that, for the first time in the 11 years of the survey, respondents have expressed interest in four out of five asset classes," added Fetgatter. "The foreign investor is no longer just a buyer of large office buildings."
Although multi-family was ranked as the most attractive property type for investors' dollars in 2002, its attractiveness rating declined by 15%. Office buildings, which ranked as the number one property type for investors' money between 1995 and 2000 and the second in 2001, fell to third position, behind industrial properties. The hotel/leisure category, which has consistently ranked as one of the least attractive property types for investment, earned a 26% higher attractiveness rating in 2002, a greater improvement than any other property type. Retail also showed a significant gain in attractiveness among survey respondents.
Source: Association of Foreign Investors in Real Estate
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