New York City was cited as the top destination city for foreign real estate investors, not only nationally but also when global cities were considered as part of the mix. This is the third year in a row that New York City was named the top global city and the seventh as the number one US city.

Given its steady run at the top of the charts, New York City's selection was not a surprise, Fetgatter says. “There are few alternatives in terms of size and vibrancy,” he says. The one competing global city that is able to nudge New York aside — namely, London — now must contend with the uncertainty of Brexit. Indeed, more than 50% of survey respondents said Brexit would have a positive effect on the US real estate market.

This year London dropped from its No. 2 slot to No. 3. The city to take London's prior position is Berlin.

But even if Brexit were not an issue, New York City's fundamentals make it a strong favorite with foreign investors. In a recent report Real Capital Analytics compared global investment in New York City to the rest of the US and found it to be at record levels for the first three quarters of 2016 at 37%, according to James P. Nelson, vice chairman in Cushman & Wakefield's Capital Markets Group. “That is well above the 29% and 27% in the last two years, respectively,” he writes.

Indeed, foreign investors don't limit themselves to trophy assets in New York as they do elsewhere, so confident they are in the market. Just to cite one example — and it falls outside of Nelson's cited time frame — the Swiss pension fund AFIAA picked up a Midtown South property in December for $150 million, or $1,111 per square foot.

What was surprising was Berlin in the No. 2 spot, Fetgatter says. ”This is the first time it has been in the top five global cities.” Foreign real estate investors have tended to prefer Frankfurt and Munich for their respective strengths in international business and tourism. “Berlin is definitely the new kid on the block,” Fetgatter says.

Another surprise was the disinterest foreign investors exhibited towards Washington DC this year.

Washington DC Drops Out of the Top Five

This year, for the first time since the survey began in 1992, the nation's Capitol dropped from the list of investors' top five US cities.

The rankings were:

No 2. — Los Angeles, which was also No. 2 in last year's survey;
No 3. — Boston, which was tied with Seattle for No. 5 last year;
No 4. — Seattle, which was tied with Boston for No. 5;
No 5. — San Francisco, which dropped from No. 3.

The AFIRE survey does not ask investors about the reasons behind their decisions; in fact the survey does not measure intent. Rather it is meant to capture attitudes among foreign investors — what they are thinking about certain cities or regions in terms of favorable investment climate at that point in time, Fetgatter says. So when asked why Washington DC has fallen out of favor or why Boston shot up two notches, he makes clear that he is extrapolating from numerous conversations he has had with investors.

Boston, for example, has gotten a certain vibe with investors as being more energetic, better able to attract Millennial workers and start ups. Ditto, incidentally, the newfound interest in Berlin. “It's always been an exciting city, which foreign investors are beginning to value I believe,” Fetgatter says.

Washington DC, on the other hand, has its problems including the retracting federal government real estate footprint and its high barriers to entry. Sure, one can buy an office building in Rosslyn, VA, a submarket that is literally a stone's throw away but “foreign investors want the Washington DC address,” Fetgatter says.

A Broader Approach for Foreign Investors

AFIRE's survey also captured the growing sentiment among foreign investors that they don't have to invest in a gateway city in the US. Respondents also said that smaller urban cities, such as Nashville, Portland, Charlotte, San Antonio, Madison, and Pittsburgh, have investment potential.

And while core properties remain the dominate investment strategy, more than half of survey respondents said they wanted to increase both value-added and opportunistic allocations in the coming year.

In one respect they have narrowed their investment focus, however: last year both industrial and multifamily properties were tied for the No. 1 spot. This year, investors indicated that industrial is the asset class that is most in favor, followed by multifamily.

Office came in at No. 3, an improvement over last year's No. 4 ranking and retail came in at No. 4, down from its No. 3 spot.

The hotel asset class remained the same at No. 5.

WASHINGTON, DC–Despite a volatile political year, the prospect of rising interest rates and equity and debt markets that did not behave quite as predicted, the vast majority (95%) of foreign investors still see US commercial real estate as a safe and profitable asset class and plan to keep their investments levels the same, or increase them, according to the Association of Foreign Investors in Real Estate's annual survey. This is not to say that the aforementioned risks went unnoticed by investors. One third of respondents said their sentiment about the US market had become more pessimistic; 60% felt their opinion was unchanged, and only 6% considered themselves more optimistic. In last year's survey, 8% felt pessimistic, 85% had an unchanged opinion, and 8% felt optimistic.

“Investors are signalling increased caution,” AFIRE CEO James A. Fetgatter tells GlobeSt.com. “They will be increasing their market research and investment discipline as a result.”

The survey was conducted in the fourth quarter of 2016 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

New York is the Top Choice

New York City was cited as the top destination city for foreign real estate investors, not only nationally but also when global cities were considered as part of the mix. This is the third year in a row that New York City was named the top global city and the seventh as the number one US city.

Given its steady run at the top of the charts, New York City's selection was not a surprise, Fetgatter says. “There are few alternatives in terms of size and vibrancy,” he says. The one competing global city that is able to nudge New York aside — namely, London — now must contend with the uncertainty of Brexit. Indeed, more than 50% of survey respondents said Brexit would have a positive effect on the US real estate market.

This year London dropped from its No. 2 slot to No. 3. The city to take London's prior position is Berlin.

But even if Brexit were not an issue, New York City's fundamentals make it a strong favorite with foreign investors. In a recent report Real Capital Analytics compared global investment in New York City to the rest of the US and found it to be at record levels for the first three quarters of 2016 at 37%, according to James P. Nelson, vice chairman in Cushman & Wakefield's Capital Markets Group. “That is well above the 29% and 27% in the last two years, respectively,” he writes.

Indeed, foreign investors don't limit themselves to trophy assets in New York as they do elsewhere, so confident they are in the market. Just to cite one example — and it falls outside of Nelson's cited time frame — the Swiss pension fund AFIAA picked up a Midtown South property in December for $150 million, or $1,111 per square foot.

What was surprising was Berlin in the No. 2 spot, Fetgatter says. ”This is the first time it has been in the top five global cities.” Foreign real estate investors have tended to prefer Frankfurt and Munich for their respective strengths in international business and tourism. “Berlin is definitely the new kid on the block,” Fetgatter says.

Another surprise was the disinterest foreign investors exhibited towards Washington DC this year.

Washington DC Drops Out of the Top Five

This year, for the first time since the survey began in 1992, the nation's Capitol dropped from the list of investors' top five US cities.

The rankings were:

No 2. — Los Angeles, which was also No. 2 in last year's survey;
No 3. — Boston, which was tied with Seattle for No. 5 last year;
No 4. — Seattle, which was tied with Boston for No. 5;
No 5. — San Francisco, which dropped from No. 3.

The AFIRE survey does not ask investors about the reasons behind their decisions; in fact the survey does not measure intent. Rather it is meant to capture attitudes among foreign investors — what they are thinking about certain cities or regions in terms of favorable investment climate at that point in time, Fetgatter says. So when asked why Washington DC has fallen out of favor or why Boston shot up two notches, he makes clear that he is extrapolating from numerous conversations he has had with investors.

Boston, for example, has gotten a certain vibe with investors as being more energetic, better able to attract Millennial workers and start ups. Ditto, incidentally, the newfound interest in Berlin. “It's always been an exciting city, which foreign investors are beginning to value I believe,” Fetgatter says.

Washington DC, on the other hand, has its problems including the retracting federal government real estate footprint and its high barriers to entry. Sure, one can buy an office building in Rosslyn, VA, a submarket that is literally a stone's throw away but “foreign investors want the Washington DC address,” Fetgatter says.

A Broader Approach for Foreign Investors

AFIRE's survey also captured the growing sentiment among foreign investors that they don't have to invest in a gateway city in the US. Respondents also said that smaller urban cities, such as Nashville, Portland, Charlotte, San Antonio, Madison, and Pittsburgh, have investment potential.

And while core properties remain the dominate investment strategy, more than half of survey respondents said they wanted to increase both value-added and opportunistic allocations in the coming year.

In one respect they have narrowed their investment focus, however: last year both industrial and multifamily properties were tied for the No. 1 spot. This year, investors indicated that industrial is the asset class that is most in favor, followed by multifamily.

Office came in at No. 3, an improvement over last year's No. 4 ranking and retail came in at No. 4, down from its No. 3 spot.

The hotel asset class remained the same at No. 5.