International players in commercial real estate put a leading U.S. city at the top of the list for increased investment exposure this year, and it’s not New York, according to findings from AFIRE’s 2020 International Investor Survey. At the sector level, multifamily and industrial remain the leading property types for increased investment, and climate change continues to be among investors’ biggest concerns.
The AFIRE survey, produced in collaboration with the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business, queried 200 institutional investors, investment managers and service providers around the world. Respondents cited Los Angeles as the top global city where they would like to increase real estate exposure for themselves or their clients, followed by Paris and Boston. L.A. and the City of Lights rose to the top two spots from the seventh and sixth positions, respectively, in 2019. In 2018, L.A. tied New York for number one. Fourth-place London saw the most dramatic rise on the list of cities for increased real estate exposure, jumping from the number 11 spot in 2019, while fifth-place San Francisco held the same year-over-year ranking. One of the most notable changes in the rankings involves New York. “New York shifted to a decidedly sell signal, ranking first as the city where investors would like to reduce exposure and falling from first to ninth among cities where investors would like to increase exposure,” according to the report.
The U.S. dominated the top-10 list of cities targeted for increased exposure with six locations. Respondents remain keen on the U.S. in general—for now—with 70 percent anticipating that investing in the country will be about the same as it was in 2019. “U.S. commercial real estate continues to perform well due to many of the factors outlined in the report: Job and population growth, strength in various residential markets, strong demand for modern logistics real estate, and so forth,” Gunnar Branson, CEO of AFIRE, told Commercial Property Executive. “However, unexpected global events, such as COVID-19 introduce considerable uncertainty. There’s still too many unknowns about this crisis to understand all the impacts, but we are in talks with our global membership to explore the short- and long-term implications of this event on both sentiment and portfolio performance.”
AFIRE’s 2020 survey participants named multifamily and industrial as the top two sectors designated for increased exposure. However, the passing of 12 months has closed the gap in preferences. In 2019, 71 percent of respondents sought to increase exposure in the multifamily sector, and 79 percent planned to pursue greater exposure in the industrial sector. Fast-forward to 2020, and approximately 80 percent of respondents plan to bolster exposure in multifamily and 79 percent endeavor to expand their industrial footprint. Retail lingers at the bottom of the bunch as the least favored property type.
Climate change remains at the forefront of investors’ minds in 2020. Survey participants pointed to the lack of climate action and infrastructure as one of the greatest risks for cross-border investing this year. “It’s encouraging to see how seriously institutional investors are addressing climate change,” Branson said. “Last year more than 80 percent of respondents at that time cited climate change as having a real impact on their portfolio and investment strategies. This year, almost all respondents still take it just as seriously—or even more than last year. As long-term investors, by definition, they must address long-term risks to the built environment.”