Amid immense global uncertainty and major lifestyle changes created by two years of the COVID-19 pandemic, the Association of Foreign Investors in Real Estate (AFIRE) released its 2022 International Investor Survey Report this week. The survey reinforced the sense that U.S. real estate will continue to be viewed as an attractive asset class by global investors over both the short and long term. However, a rising number of investors seems ready to start moving away from core strategies and gateway cities and into more value-add plays and smaller markets. In addition, there are some headwinds—in particular rising inflation and interest rates and still uncertain return-to-office trends—that have become greater concerns for those looking to put their money into U.S. real estate properties. Here are some takeaways from the report:
- The vast majority of respondents (75 percent) expect their level of investment in U.S. commercial real estate properties to increase over the next 12 months.
- The U.S. remains at the top of the list as an investment destination for a large share of survey respondents, with 54 percent indicating they plan to allocate most of their global real estate investment dollars here. The focus on U.S. was greater for U.S.-based investors (at 76 percent) vs. foreign investors (at 43 percent). Continental Europe and the U.K. were the next most attractive destinations for both sets of investors.
- Seventy-seven percent of those surveyed expected to be net buyers of U.S. real estate over the five to 10 years.
- Fifty percent of respondents planned to increase their U.S. real estate investment activity somewhat, and 26 percent plan to increase such activity significantly. Seventeen percent expect their level of investment to stay the same as in the past 12 months and 7 percent expect a decline in their investment activity.
- The factors driving interest in real estate investment in the U.S. by the order of priority include quality of available assets (66 percent), ability to diversify investment portfolios (57 percent), income return on investment (47 percent) and the ease of doing business (40 percent), among other things.
- Inflation was the No. 1 factor creating concern about U.S. real estate investment activity, with 60 percent of respondents saying they were somewhat concerned about it and 31 percent being very concerned. Interest rate fluctuations were the next biggest concern (with 56 percent being somewhat concerned and 31 percent very concerned) and changes in life/work preferences were third (with 46 percent somewhat concerned and 25 percent very concerned).
- At the moment, 50 percent of surveyed investors say their portfolio strategy involves a focus on core properties, followed by 30 percent who focus on value-add and 17 percent who pursue opportunistic deals. Over the next three to five years, however, there will likely be an increased focus on value-add investments. Forty-six percent of those surveyed predicted they planned to increase such investments somewhat, and 16 percent said they would increase them significantly. Another 39 percent said they would increase opportunistic investments somewhat and 18 percent plan to increase them significantly. The compares to 26 percent who plan to increase core investments somewhat and 13 percent who plan to invest core investments significantly.
- Multifamily acquisitions will likely be the most popular investment play in U.S. cities over the next three to five years, followed by life sciences real estate, industrial, self-storage and medical office buildings. Seniors housing, infrastructure, hotel and retail sectors were the most likely to see the same level of investment as previously, with some respondents planning to invest slightly more or slightly less in them.
- Secondary and tertiary cities continue to be investment targets for AFIRE survey respondents. Seventy-one percent indicated they planned to increase investment in secondary U.S. cities over the next three to five years, and 63 percent plan to increase investment in tertiary cities. At the same time, only 32 percent plan to increase their investment in gateway U.S. cities over the same time period.
- Atlanta became the city most favored for future real estate investment by the respondents (with 37 percent indicating it was their top destination). Atlanta was especially popular among those based outside the U.S.; 28 percent of whom ranked it as their No. 1 choice, compared to 18 percent of U.S. investors. Austin, Texas and Boston also remain popular (they tied for second place, with 32 percent of survey respondents picking them), although Austin fell one spot from its placement atop the 2021 AFIRE survey. Other cities rounding out the top destinations for U.S. real estate investment included Dallas, Seattle and New York.
- Austin, Atlanta, Boston and Dallas also ranked as the top four destinations for real estate investment globally.
This year’s survey collected responses from 72 organizations from both within and outside AFIRE members spread across 15 countries. It was conducted through online surveys administered throughout February 2022 with the help of the research team at consulting firm PwC. AFIRE members include 175 companies from 23 countries with $3 trillion in assets under management.