Foreign investors warm to US real estate market

Real Estate Weekly, Dec 15, 1993

Responding to an industry survey, two-thirds of foreign investors say their opinion of the U.S. as a conduit for real estate investment is better this year than in 1992. Their opinion was viewed as especially significant because, when asked the same question last year, only 29 percent of the foreign investors had responded that the 1992 market was better than 1991.

This clear vote of confidence in an improving U.S. economy was under-scored by a significant drop in negative attitude on the part of the foreign investors. This year, only 5 percent of the respondents said their opinion of the U.S. as a conduit for real estate investment was worse in 1993 than 1992. Last year, almost tour times that amount, or 19 percent of the respondents, said that their opinion of 1992 was worse than 1991.

Specifically, 67 percent of foreign investors said their opinion of the U.S. as a conduit for real estate investment was better this year than last year. Twenty-eight percent responded that their opinion was "about the same" as last year; almost halving the number of fence sitters (52 percent "about the same") in last year's survey.

The investors were polled by the Association of Foreign Investors in U.S. Real Estate (AFIRE). The findings were released last week by AFIRE chief executive James A. Fetgatter. The survey was distributed among the organization's members, who represent approximately half of foreign investment in U.S. real estate. AFIRE members include Shell Pension Fund, Deutsche Bank, Philips Pension Funds and Mitsubishi Estate.

Again this year, Washington, DC was the city ranked highest in the U.S. for future real estate investment by foreign investors, scoring over four times higher than the next ranked city, New York.

However, New York, which was ranked a distant Number 5 among U.S. cities last year, soared to the Number 2 spot. New York edged out Atlanta, which dropped from Number 2 to a closely-ranked Number 3, followed by San Francisco and Dallas. Seattle, which had been ranked Number 4, was not among the top 5 AFIRE cities this year.

Fetgatter said, "It's clear that foreign investors' perception is that conditions are improving in the U.S. real estate market."

In answer to the question, "How will your plans for investment in U.S. real estate change in 1994?," 32 percent of the respondents said they would increase investment; 36 percent replied their level of investment would remain "about the same;" and 32 percent said they would reduce their investment in U.S. real estate.

Sixty-three percent of the foreign investors said they would not change the product type of investment. However 37 percent responded that they would change their type of investment.

Eleven percent said they would invest more of their portfolio in office space; 33 percent said more in multi-family housing; and 56 percent said more in retail space.

It also was noteworthy that the respondents overwhelmingly preferred the U.S. over Europe for real estate investment. Fiftyeight percent of the foreign investors said the U.S. was "better" than Europe for investment; 21 percent said "about the same;" and 21 percent said "worse."

However, most of the respondents said that Asia was better than the U.S. for real estate investment. Comparing the U.S. with Asia, 33.3 percent said the U.S. was "better" than Asia; 13 percent said "about the same; and 53.7 percent said the U.S. was "worse" than Asia for real estate investment. These findings approximately matched last year's survey results.

According to the U.S. Department of Commerce, foreign investment in U.S. real estate totaled more than $35.2 billion in 1992, a slight increase above last year's figure of $33.7 billion.

In conclusion, this year's survey - like last year's - found that retail development was the most desirable product type for future investment. Multi-family housing was ranked second most desirable for future investment; office and industrial were tied for third and hotels were least desirable.

The Association of Foreign Investors in U.S. Real Estate is a Washington-based non-profit trade association for major institutions and investors outside the U.S. with an interest in the laws, regulations, economic trends and communications relating to the U.S. real estate market. It consists of more than 90 corporate members representing 11 countries.