Foreign CRE Investors Plan to Increase US Allocations

AFIRE, the Association of Foreign Investors in Real Estate,  just released its 2021 survey. The results show that 60% of responding investors expect to increase their investment volume this year.

The online survey was of 101 respondents from 19 different countries over a three-week period in March. The percentage of investors expecting to put more money into US CRE was much larger than for Europe (17%), Asia-Pacific (9%), the U.K. (7%), Canada (5%), or Australia and New Zealand (3%).

Nearly three-quarters of respondents forecasted an increase in US investment allocation within three to five years. For non-US-based investors, the number was 71%, while for US-based investors it was 79%.

The top three reasons that favored increased allocation from outside and within the US were quality of assets, diversification ability, and income return. The next most important set of factors were ease of doing business, political stability, and range of assets.

Investors will be seeking out multifamily and industrial properties, with 86% and 79%, respectively, planning to increase their activity in the sectors over three to five years. In 2020, the responses were 82% and 79%.

Not surprisingly, given the effects of the pandemic, hotels, office space, and retail were less popular, with 25%, 24%, and 6% respectively planning increased investments. Retail stood out as the only one of the categories were a majority, 56%, planned to decrease their allocations.

Core properties continue to be the bulk of portfolios, but the amount is down significantly from pre-pandemic 2019. Then, core made up 60% of portfolios. In 2021, the number is 51%. Over the next three to five years, 90% of respondents expected to stay the same or either increase or decrease somewhat, showing stability.

Value-add investments will be 30% of portfolios this year, with 51% increasing somewhat in the near future, 38% staying the same, and 2% decreasing somewhat. Opportunistic holdings will be 15%, with relatively little change seen in three to five years.

Most planned investment is largely in secondary and tertiary markets. The top five cities are Austin (tertiary and mentioned by 30% of respondents), Boston (primary, 30%), Dallas (secondary, 29%), Atlanta (secondary, 25%), and New York City (primary, 21%). It’s the first time AFIRE found a tertiary city at the top of the rankings.

The biggest concerns for investors are, in the business climate, the potential for increased tax rates (78% either somewhat or very concerned), interest rate fluctuation (73%), and U.S. economic growth (61%).

And ESG concerns are growing. While the factors are currently very important for 27% of investors and somewhat important for 54%, the numbers flip within three to five years to 69% and 24%, respectively.