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U.S. real estate to draw more foreigners in 2016, survey says

New York remains the top target market worldwide for real estate investors, says a survey by the Association of Foreign Investors in Real Estate.

Craig Warga/Bloomberg

Most foreign investors expect to put more money into U.S. property this year than they did in 2015, with New York remaining the top target market worldwide, according to a survey by the Association of Foreign Investors in Real Estate.

Sixty-four per cent of respondents said they intend to make modest or major increases to investments in U.S. real estate this year, while 31 per cent expect to maintain their holdings or reinvest sales proceeds into other U.S. assets, according to the 24th annual survey by the group, known as AFIRE. None of the respondents plans a major decrease. About half of the group's roughly 200 members participated in the survey.

"This is a very strong response," said Jim Fetgatter, chief executive officer of Washington-based AFIRE, whose members hold about $2-trillion (U.S.) of real estate globally. China's economic slowdown, Brazil's recession and Europe's immigration crisis underscored for international investors that "the U.S., at the moment, really is the safest place for them to go."

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Foreign purchases of U.S. real estate have soared since the 2008 financial crisis, jumping to $87.3-billion of completed deals last year, from less than $5-billion in 2009, according to Real Capital Analytics Inc. Investors from Canada, Asia, Europe and Australia bought stakes in office towers, warehouses, apartment buildings, shopping malls and hotels in search of relatively higher yields. Manhattan captured $23.5-billion, or 27 per cent, of 2015 purchases, Real Capital data show.

The United States also ranked first for countries with the best opportunity for price appreciation in 2016, followed by Brazil, Spain, Ireland and Britain, the AFIRE survey showed.

London and Los Angeles were the second- and third-most popular cities for real estate investments in the survey. Berlin climbed three places to No. 4, the first year a German city reached the top five. Paris tied with San Francisco for fifth place, according to AFIRE. A Canadian city didn't make the global top eight.

Within the United States, multifamily and industrial real estate were the favourite property types for a second year, while retail moved up to third place from fourth. Offices fell to fourth from third, and hotels stayed at No. 5, according to the survey.

The recent passage of legislation easing taxes for foreign pension funds that buy U.S. real estate probably will boost investment further, Mr. Fetgatter said. Many cross-border investors previously bought U.S. properties with domestic majority partners.

The new law "simplifies the investment process and opens up a lot of opportunities for structuring their deals in a different way," he said.

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