AFIRE 2020 International Investor Survey

Results indicate positive outlook for US real estate market, despite uncertainties

• Joint AFIRE/Graaskamp Center survey also highlights institutional investor outlook on global cities, climate change, rent control, and environmental, social and governance (ESG) topics

• Continued low interest rates, stable credit environment, balanced inflation, and employment indicate a positive US market outlook among 70% of investors

• Two out of three respondents are giving even greater risk consideration to climate change issues than indicated in 2019

• Nearly nine out of ten investors include ESG criteria for investment decisions, and 90% receive the same or higher returns when accounting for ESG criteria

• Los Angeles, Paris and Boston are the top three global cities where investors would like to increase their investment exposure

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Note that this survey was produced before COVID-19 became a known issue, and today its impact on investment performance, operations, and economic forecasts continues to evolve. Please go here to view our latest resources and insights regarding COVID-19.

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AFIRE, the association for international real estate investors focused on commercial property in the United States, today announced the findings from its 2020 International Investor Survey, which measures sentiment, trends, and capital flows for global institutional investment in real estate. Now in its 28^th year, the survey collects responses from AFIRE’s global membership, which includes more than 200 global institutional investors, investment managers, and service providers with approximately $3 trillion in assets under management.

Produced in collaboration with faculty and students at the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business, the report includes institutional insights on the US real estate market and asset classes; economic outlooks and risks; global city trends; environmental, social and governance (ESG) issues; climate change; and rent control.

“The fiduciary responsibility integral to our work in the global institutional real estate investment community is based on taking a patient, informed, and long-term view,” said Martin J. Brühl, Chairman of AFIRE and Managing Director and Chief Investment Officer Union Investment Real Estate GmbH. “In this spirit, our annual survey is an important entry in the ongoing conversation about what it means to be better investors and leaders in a constantly changing global landscape.”

“US commercial real estate continues to perform well, even amidst a range of uncertainties,” said Joe Walsh, Faculty Associate at the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business, who led a student team for the survey. “We are proud of our longstanding collaboration with AFIRE and its prestigious membership to trace how this story continues to evolve over time.”

Overall US Market Outlook

Continued low interest rates, stable credit environment, balanced inflation, and employment serve as the basis for a positive US market outlook among 70% of investors. Other reasons for optimism in 2020 include the continued economic growth, return opportunities, and liquidity of the US market relative to other markets. (View PDF)

Institutional Investment Risks and Opportunities

A large majority (83%) of investors claimed in last year’s report that climate issues would affect their portfolio strategies. This year, two out of three respondents are giving even greater risk consideration to climate change issues, such as sea level rise. Additionally, nearly half of investors included geopolitical issues among their primary concerns for cross-border investing in 2020. (View PDF)

Global Cities: Stability, Exposure, Capital Appreciation

Los Angeles, Paris and Boston are the top three global cities where investors would like to increase their investment exposure (the three ranked at #7, #6, and #2 in 2019, respectively). London retains its top ranking for the second year in a row as the best global city for capital appreciation, despite Brexit concerns. New York also retains its top rank as the most stable and secure global city, though it also tops the list of cities where investors would like to decrease exposure, followed by Hong Kong and Chicago. (View map PDF; View rankings PDF, PNG 1, and PNG 2)

ESG

Nearly nine out of ten investors include ESG criteria for investment decisions, and 90% of investors receive the same or higher returns when accounting for ESG criteria, while only 10% believe that they had lower returns. Affirmed ESG criteria for investors include LEED, GRESB, the UN Global Compact, Building Better Partnership, and Thrive. (View PDF)

Rent Control

Investors view rent control as counterproductive for addressing housing affordability; 72% say it constrains supply, and 62% say it skews new development toward high-income housing. Two-thirds of investors agree that recent increases in cap rates in rent control markets are due to investors’ perceptions of increased risk in the current political climate. (View PDF)

Property Types and Capital Intentions (MEMBERS ONLY)

More than 80% of investors seek to increase exposure in multifamily, and 79% seek to increase in industrial, while retail is the least favored property type with 53% of investors seeking to decrease. More broadly, 50% of non-US capital sources report intentions for a net inflow of capital to US real estate in 2020. Only 18% plan net outflows from US real estate, scattered among all non-US capital sources. (MEMBERS ONLY)

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Read more about this year’s survey, and its alterations in the wake of the COVID-19 pandemic, in BisNow, Commercial Property Executive, CoStar News, Mortgage Professional America, National Real Estate Investor, and Pensions & Investments.

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