Despite Everything, the U.S. is Still Considered a Safe Investment

The U.S. media continues putting rising interest rates and ongoing inflationary concerns in its headlines. Yet despite all of this, international institutional investors continue to view U.S. commercial real estate as “a preferred destination, relative to Europe, for real estate investment across property types,” according to a recent survey released by the Association of Foreign Investors in Real Estate (AFIRE).

In the AIFRE International Investor Survey: Q1 2023 Pulse Report, respondents indicated that:

• The U.S. is the best country for CRE allocation when it comes to global forecasting

• Multifamily and industrial are the preferred asset types, while office continues struggling

• New York reigns as the top U.S. city for preferred real estate investments

However, for all their optimism, AFIRE investors noted some concerns. For instance, sustainability and ESG remains “a top 3 area of concern” among respondents; 86% agreed that climate risks are not yet reflected in valuations. Additionally, the majority of those surveyed—97%–agreed that the availability and pricing of debt is making commercial real estate transactions is very difficult.

Furthermore, while planned allocation to the United States increased by 6% over 2022 (versus to Europe, which declined by 5%), “the overall sentiment has been muted,” the survey indicated. Both capital sourcing and distribution for U.S. real estate originates within the U.S., with flows from Europe reduced. Still, “investors remain more upbeat regarding their own portfolio performance for the year ahead, with one in three expecting to increase U.S. investment in 2023,” the report noted.

On the capital side of acquisitions, investors did express optimism for debt funds and non-banks in 2023. But fewer than one in three of those surveyed believe there will be greater capital availability from banks and CMBS. “U.S.-based investors are more likely to expect lending from non-banks, commercial mortgage-backed securities and debt funds to rise this year,” the report said.