International interest in US retail assets is decidedly less enthusiastic
US multifamily and industrial properties remain the favorite real estate investment vehicles from global entities, according to the 28th annual edition of the International Investor Survey conducted by the Association of Foreign Investors in Real Estate (AFIRE) and the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business.
However, the survey may already be a tad outdated: it was conducted prior to the economic anxiety created by the coronavirus outbreak. A follow-up survey is now underway to determine current trends and concerns.
Nonetheless, the pre-coronavirus attitude pointed to continued interest by global investors in US commercial real estate. Among the survey’s respondents, 72% viewed the 2020 US commercial real estate market as being as attractive the 2019 edition, while 8% felt it was even more attractive and 19 percent believed this year’s market was less attractive than the last.
The survey also found more than half of foreign investors predicting their companies would have net capital inflows with the US commercial real estate sector this year, versus 18% that were planning for net outflows. Investors were eager to increase their exposure to US multifamily properties (80% of respondents) and industrial properties (79%), but 53% of respondents were planning to reduce their exposure to retail assets.
The survey also ranked the world’s major cities where global investors are hunting for real estate deals, with Los Angeles topping this year’s list, up from seventh place last year. Last year’s top city, New York City, topped this list of the major city where global investors were eager to reduce their real estate exposure.
The survey also determined that environmental, social and governance (ESG) considerations play a growing role in real estate transactions, with 25% of respondents saying ESG issues are crucial to the decision-making process and 64% saying it was important, albeit not a requirement, and 11% stated ESG played no factor. Furthermore, 43% of respondents believed including ESG criteria in investment decisions generated higher risk-adjusted returns
The survey polled AFIRE members, which include more than 200 global institutional investors and investment management firms with approximately $3 trillion in assets under management.
“The fiduciary responsibility integral to our work in the global institutional real estate investment community is based on taking a patient, informed, and long-term view,” said Martin J. Brühl, chairman of AFIRE and managing director and chief investment officer at Union Investment Real Estate GmbH. “In this spirit, our annual survey is an important entry in the ongoing conversation about what it means to be better investors and leaders in a constantly changing global landscape.”
“US commercial real estate continues to perform well, even amidst a range of uncertainties,” said Joe Walsh, faculty associate at the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business, who led a student team for the survey. “We are proud of our longstanding collaboration with AFIRE and its prestigious membership to trace how this story continues to evolve over time.”