New York - The United States will remain the top choice of
most global commercial real estate investors in 2012, but the country has lost
ground to Brazil which ranked No 2 this year, according to a survey released
While the United States offers the most stable and secure
option in commercial real estate, investors said improvement in rent and
occupancy growth and the repeal of a 1980 foreign investment tax would have the
strongest impact on their investment decisions, according to the 20th annual
survey of Association of Foreign Investors in Real Estate (AFIRE) members.
For about the past year or so, investors in US commercial
real estate have focused on gateway cities such as New York, Washington,
Boston, San Francisco and Los Angeles, driving prices up and yields down.
Meanwhile commercial property in Brazil, with its bubbling
economy and safer investment environment, has become a hot spot for global
investors. Sao Paulo, Brazil's largest city, jumped to the fourth best city for
real estate investment dollars in 2012, up from 26th place last year.
The United States is still very desirable and was second
behind the UK in attracting cross-border investment in 2011, according to Real
Capital Analytics preliminary figures.
"The negative is it doesn't promise a whole lot of
capital appreciation because the prime markets are already fully priced,"
AFIRE CEO James Fetgatter said.
"By no means will
Brazil replace the US, at least not in the forseeable future. Brazil is
considered now a much safer place to invest and a place where you can get
capital appreciation and good yield."
AFIRE'S survey respondents hold more than $874bn of real estate globally, including $338bn in the United
Sixty percent of respondents said they plan to increase
their investment in US real estate in 2012, down from a record 72% last year, according to the 20th annual survey.
Some 42.2% said they believed the United States in
2012 would offer the best opportunity for the price of their commercial real
estate investments to increase, down from 64.7% last year's survey.
The United States lost ground to Brazil, with 18.6%
saying Brazil's property market offered the best growth opportunity for their
investment dollars. That's up 14.2 percentage points, moving Brazil up to
second place from fourth, and pushing China down to No 3, according to the
Seventy percent of respondents picked one of the three
countries as their favourite, while the remaining 30% had top choices
from 13 other countries on five continents.
Respondents said they would invest more in US commercial
property if the fundamentals of rent and occupancy growth were stronger.
Another US barrier respondents cited was the Foreign
Investment in Real Property Tax Act (FIRPTA). The 1980 act, originally designed
to protect farm property from foreign ownership, subjects foreign buyers to
both their domestic and US taxes when they sell their investment, unless
their home country has a taxation treaty with the United States.
FIRPTA opponents have argued that the act unfairly penalises
foreign investors of real estate. Such double taxation does not apply if they
buy US stocks or bonds.
As for the top cities for foreign investment in 2012, New
York remained No 1. London moved up to No 2 from No 3, swapping ranks with
Washington. Sao Paulo was fourth, and San Francisco moved up to No 5 from No
10 last year.
Europe's sovereign debt problems and looming recession
pushed most of the countries there - except for a few such as Switzerland and
Poland - off the map for real estate investors. Germany lost about half its
support among respondents in terms of stability and price appreciation,
according to the survey.
Emerging markets also seem to be getting more popular among
potential investors. Respondents identified 25 countries they would consider
for investment, up from 18 last year.
Brazil topped the list, with China in
second place, as each did last year. Turkey moved up to No 3 from No 7 last
year. India and Vietnam each dropped down one spot, to No 3 and No 4
respectively. Appearing for the first time were Colombia, at No 10, Hungary at
No 12, and Qatar at No 17.
As for US commercial real estate, respondents said that
this year they would most likely invest in apartment buildings, the fourth
consecutive year multifamily topped the list. Of all the types of US
commercial real estate, the multifamily sector has not only recovered from the
post-2007 real estate slump but rents and occupancy are even stronger than
Warehouse and distribution centres ranked second, up from
No 5 last year. Office properties were third, up a notch from No 4. Retail
properties - shopping centres and malls - slipped to No 4 from No 2. Hotels
ranked No 5, down from No 3 last year.
The survey was conducted in the fourth quarter by the James
A Graaskamp Center for Real Estate, Wisconsin School of Business.