London surged ahead of Washington D.C. as the favorite destination for commercial real estate investment, leaving New York in the dust, according to a recent survey by the Association of Foreign Investors in Real Estate (AFIRE).
London's score was 31 points higher than second-place Washington and 40 points ahead of third-place New York. Last year, London was in second place, four points behind Washington and only two ahead of New York.
Investors believe that commercial real estate priced in London already have bottomed out. Because of differences in accounting practices, prices in the US have not.
“London currently offers investors the advantage of a “re-priced” market,” James Fetgatter, AFIRE chief executive, said. “The re-pricing began sooner than it did in other cities.”
The survey of the association's nearly 200 members was conducted in the fourth quarter 2009. Survey respondents own more than $842 billion (Ł515 billion) of real estate globally including $304 billion in the US.
The United States remained the country selected as the “most stable and secure real estate investment environment,” although only 44% of the respondents said so. It was the first time the United State fell below 50% in the survey. That's down from 53% in 2008 and 57% in 2007.
Germany was second with 21%.
“The financial crisis of the past year has obviously affected investors' perceptions of US real estate as ‘stable and secure’,” Fetgatter said. “However, it is also apparent that opportunity lies within this instability since the US, along with the UK, show substantially higher scoring for expected capital appreciation.”
51% of respondents said the United States provided the best opportunity for price appreciation. According to various research firms, prices have fallen from their 2007 peaks by more than 40%.
Respondents saw the UK as the second-best country for capital appreciation, and China came in third.
Two-third of the respondents said they planned to raise their US investment in 2010, increasing equity investment by 62% and debt investment by 83% over 2009 levels.
Meanwhile, The Real Estate Round Table, which represents US commercial real estate property owners, investors and professionals has been lobbying Congress to change the rules that subject some foreign owners to double taxation.
As for global investment, respondents said this year's equity investment would be 46% higher than in 2009 but 20% lower for debt investment.
Among US cities respondents chose Washington and New York, with San Francisco running a distant third. Boston made significant headway into fourth place, with Los Angeles falling one spot into fifth place.
Survey respondents said they favored investing in multifamily real estate as their preferred property type followed by office, industrial, retail and hotel properties trailing significantly.
“More notably, the gap between the top preference and the least-favored product, hotels, has not been this wide since 2000,” Fetgatter said.
Half the survey respondents said they expect the US commercial real estate market recovery by or before the fourth quarter, six months later than they projected in AFIRE's mid-year 2009 survey.
About a third of those surveyed said they were more optimistic about the US real estate market than they were in June; 63% say their perspective has not changed and 6% say they are more pessimistic.
Respondents said their top favorite emerging markets are China, Brazil, India, Mexico, and Turkey. Brazil and India, which were the first- and second-ranked emerging markets in the 2009 survey, each receive half the votes of China. (Reuters)