AFIRE's James A. Fetgatter

WASHINGTON, DC-The Association of Foreign Investors in Real Estate has released its annual survey of global cities in which foreign real estate investors say they will invest–and Washington, DC is not in one of the top two positions as it usually is. Instead, the city is clocking in position four, after New York, London and San Francisco, and right before Houston. AFIRE’s 2013 survey is slightly different from years’ past for another reason as well: for the first time since 2001 when AFIRE began querying investors, it contains four US cities in the top five.

Being number four is hardly the end of the world for Washington, DC, but it does represent a setback, James A. Fetgatter, chief executive of AFIRE, tells He attributes the drop to the fears surrounding the US budget crisis and the constant talk of reducing spending. “Whether that [spending cuts] will ever happen is a political question and anyone’s guess,” Fetgatter says. “But there is enough talk about it that there is concern among investors that there will be reduction in space needs among the federal government and federal contractors.”

Also, he adds, Washington DC can be pricy from a cap rate perspective. “If investors are looking for yield—and many foreign investors are–Washington is not necessarily the best place to go.”

San Francisco and Houston, by contrast, are showing growth due to their respective strengths in the high tech and energy sectors. “Obviously investors are pinpointing the areas of growth that are expected to lead the US recovery,” Fetgatter says.

The survey was conducted in the fourth quarter of 2012 among the association’s nearly 200 members by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

Other findings from the survey:

• The U.S. is first-ranked in providing opportunities for capital appreciation, receiving 55% of the vote. The second-ranked country, Brazil, received 17% of the vote. In yet another “first” Turkey ranked among the top four markets for capital appreciation and was the third-ranking among the emerging countries selected for respondents’ investment dollars.

• Eighty-one percent plan to increase their portfolio size in the US with 31% planning a “major net increase.” None of the respondents reported plans to decrease their U.S. portfolios.

• Seventy-one percent of respondents also say that improving fundamentals will make secondary markets in the US more desirable in 2013.