NYC No Longer First Global City in RE Investments

By Gail Kalinoski

Edward Casal

Apparently spurred by e-commerce’s impact on industrial and logistics properties near its port, Los Angeles has tied New York as the number one city in the United States for foreign investment, moving up from second last year in an annual survey.

Los Angeles also ranked fourth globally, according to results of the 26^th annual survey of members of the Association of Foreign Investors in Real Estate conducted in the fourth quarter of 2017 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business. AFIRE members are among the largest institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally.

New York also took a bit of a hit as the number one global city for foreign real estate investors, dropping to second place behind London, which climbed from third in last year’s survey to become the top global city for foreign investment. Rounding out the Top Five Global Cities were Berlin, dropping to third from second the previous year, Los Angeles and Frankfurt, which moved up from 13 to round out the Top Five.

Edward Casal, AFIRE’s newly elected chairman and chief executive, global real estate, of London-based Aviva Investors, said fears about Brexit have begun to wane. “A year later, foreign investors are less concerned about the ramifications about Brexit. At the same time, the London marked has been buoyed by several large sales over the last year,” said Casal in a prepared statement. “London has a number of attributes as a location for investment, including a stable rule of law, transparency, and use of the English language. In addition, a favorable time zone for international business, deep labor pool, and cultural attributes also help.”

In the U.S., New York had been the top U.S. city for the last seven years, holding a substantial lead over Los Angeles, but the e-commerce boom seems to have helped boost Los Angeles from fifth in 2014 and second last year to take the number one position.

Jim Fetgatter

“With the growth of on-line shopping, foreign investors continue to rank industrial/logistics properties as their number one investment opportunity. The cargo coming into the Port of Los Angeles represents 43 percent of all cargo coming into the United States. Respondents also say on-line shopping is likely to have the biggest effect on real estate over the next five years. With these benchmarks, it’s easy to see hwy investors would be bullish on Los Angeles,” Jim Fetgatter, AFIRE chief executive, said in a prepared statement.

Seattle, which placed fourth last year, moved onto third for the Top Five U.S. Cities for foreign investment, followed by Washington, D.C., up from sixth, and San Francisco, holding at fifth. Although San Francisco and Washington, D.C., both made the top five U.S. cities list, they both dropped on the investors’ top global cities list. San Francisco, which had been in the top five since 2011, dropped to 11^th place, and Washington, D.C., slid from 15^th place last year to 25^th place this year on the global investment list.

Fetgatter told Commercial Property Executive the foreign investors may be reacting to the high valuations of commercial property in San Francisco. As for Washington, D.C., he said pointed to ongoing consolidation among the city’s law firms and federal government.

“And we have a President who ran on the idea of reducing government. If you’re sitting anyplace outside of this market, reading the headlines, you might think that space will continue to consolidate among DC’s major office users,” Fetgatter said. “Foreign investors in Washington, D.C. typically go after office assets. And office space is not the darling of the moment among foreign investors – they have said they are more interested in distribution and warehouse space.”

Industrial is Favorite Investment

Every year since 2015, industrial real estate has ranked as the top property type for foreign investors. This year, multifamily and office were in second and third places respectively followed by hotels in fourth and retail in fifth.

The survey found foreign investors are cautious and did express concern about where the industry is in the typical real estate cycle, citing interest rate risks, high valuations, the impact of emerging technologies, possible oversupply in some markets and property types and possible economic and political missteps, which could disrupt financial markets or trigger an economic slowdown.

Despite those concerns, 58 percent of the respondents said the U.S. is still the most stable for real estate investment and 86 percent said they plan to maintain or increase their interest in U.S. real estate this year. Other countries considered the most stable and secure for real estate investment were Germany, Canada, UK and Australia.

Photo courtesy of AFIRE