What Foreign Investors Want in U.S. CRE
The U.S. market continues to be a preferred global destination for investment.
Foreign investors remain interested in the U.S. commercial real estate market, especially certain property types such as multifamily and industrial. These are among the findings of a survey from the Association of Foreign Investors in Real Estate (AFIRE).
The US market continues to be a preferred global destination for investment with allocations increasing 6% in 2022, the survey found, while European investment declined 5%.
New York has returned to the number one spot for preferred investment among US cities, up from ranking fifth in 2022. London remains top among global cities.
Property type preferences are in flux, with multifamily and industrial showing strength while office was cited as a leading area of concern among investors.
Investors identified multifamily and industrial to be the most attractive, with 94% of investors seeing the property type as attractive or very attractive as a product type for US real estate investment. In fact, some 40% said they would be willing to accept a lower expected rate of return in order to invest in more attainable housing.
A total of 83%, meanwhile, cited industrial and logistics as either somewhat more attractive or significantly more attractive. However, 12% said its attractiveness had decreased significantly.
Hospitality came out as the third ranked investment option, with 43% saying it is increasingly attractive. US investors were found to be more bullish (61%) over non-US investors (25%).
Investors ranked office as the least attractive for US investment (with only 15% saying it had increased its appeal), and the most difficult property type for securing finance. Retail had a mixed, though more unfavorable than favorable, view, with 41% of investors identifying it as attractive for US investment, 50% classifying it as unattractive and 9% unsure.
Among the other findings of the survey, continued interest rate rises are weighing on access to capital, limiting access to reasonable financing and impeding transactions (97% stated).
ESG/sustainability remains a significant area of concern among investors, including a large majority (86%) who agree that climate risks are not yet reflected in valuations.
Members of AFIRE represent around 175 organizations from 25 countries, with approximately $3 trillion in assets under management in the US.
The survey was conducted from December 2022 to January 2023.