By Adrian Bishop
London has been voted the number one city in the world for real estate investment, with German cities increasingly attractive options.
So says the 2018 Foreign Investment Survey from the Association of Foreign Investors in Real Estate
London jumped two places from last year’s survey, with New York dropping one place to second and Berlin down one to third in the Top Five Global Cities category. Los Angeles was fourth and Frankfurt fifth. This was the first year that two German cities made the top five.
AFIRE members are among the largest international institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally.
Edward M. Casal, AFIRE's newly elected chairman, and chief executive, global real estate, of London-based Aviva Investors, says, “A year later, foreign investors are less concerned about the ramifications of Brexit. At the same time, the London market has been buoyed by several large sales over the last year.
“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 favourable time zone for international business, deep labour pool, and cultural attributes also help."
The other top five results were:
Countries Providing the Best Opportunity for Capital Appreciation
1. US (#1 last year)
2. Brazil (#2 last year)
3. China (tied with Spain for #6 last year)
4. Spain (tied with China for #6 last year)
5. UK (#3 last year)
Most Stable and Secure Countries for Real Estate Investment
1. US (#1 last year)
2. Germany (#2 last year)
3. Canada (#3 last year)
4. UK (#5 last year)
5. Australia (#4 last year)
Top Emerging Countries
1. Brazil (#3 last year)
2. China (#1 last year)
3. India (tied with Mexico, #4 last year)
3. Mexico (tied with India, #2 last year)
5. Colombia (#9 last year)
Top Five US Cities
1. Los Angeles (tied with New York, #2 last year)
1. New York (tied with Los Angeles, #1 last year)
3. Seattle (#4 last year)
4. Washington, DC (#6 last year)
5. San Francisco (#5 last year)
Eighty-six percent of respondents say they plan to maintain or increase their investment in US real estate in 2018.
Mr Casal says, “Significantly, San Francisco, which has been on investors' top five global cities list since 2011, fell into 11th place, and Washington, D.C. continued its slide among global cities, falling from 15th place last year to 25th this year.
New York had been named the top US city for the last seven years, holding a substantial lead over Los Angeles. As recently as 2014, Los Angeles was in fifth place among US cities. It only moved into second place in 2016. The remaining top five US cities, in order, are: Seattle, Washington, and San Francisco. Seattle moved up from fourth place and Washington rejoined the list after falling off into sixth place last year.
With 58% of respondents' votes, the US remains the country considered the most stable for real estate investment. Germany again took second place with 20% of the votes, and Canada remained in third place with 12%. The UK moved into fourth from fifth, while Australia fell from fourth to fifth.
The US also continues to lead the world in terms of offering the best opportunity for capital appreciation, followed by Brazil, remaining in second place. China and Spain both moved up from a sixth-place tie last year, taking third and fourth places respectively. The UK fell from third to fifth place.
At the same time, AFIRE members are cautious, expressing concerns about where the industry is in the typical real estate cycle. They cited concerns about interest rate risks, high valuations, the impact of emerging technologies on retail and other property sectors, oversupply in some markets and property types, and possible economic and political missteps which could affect real estate by triggering an economic slowdown or disruption in the financial markets.
Nonetheless, by a substantial margin, the US was ranked as the number one country for planned real estate investment in 2018 followed by the UK, Germany, Canada, and France. Survey respondents also cited several strengths of the US market including the United States' strong, stable economy, transparent capital markets, and reputation for innovation. As alternative asset classes they pointed to senior housing, infrastructure, medical office buildings, and student housing.
Brazil regained its foothold as the number one emerging market, moving up from third place to replace China, which fell to second place. India moved into third place from fourth, Mexico fell from second place to a tie for third with India, and Colombia entered the list of top five emerging markets in fifth place.
The 26th annual survey was conducted in the fourth quarter of 2017 by the James A. Graaskamp