C&W Market Update: The Biggest Boat

As you will read in the post by our Head of Investment Strategies Janice Stanton, 2010 has been one of recovery for US capital markets with investment volumes up across the board and pricing improving in core US markets including Washington, New York and Boston. Part of the reason for this improvement has been a strong interest in US real estate assets from overseas investors. Whether it is a German fund buying a building in Manhattan, a Mexican billionaire purchasing a Fifth Avenue office building or Italian investors purchasing an asset in Washington DC, US office properties in major markets are attracting the interest of investors throughout the world.

I’m reminded of the old seaman’s adage “when you are in a storm, get into the biggest boat”. In the financial environment the world has experienced over the past two years (yes it really has been two years since Lehman Brothers declared bankruptcy) safety and security have been much more important considerations for investors than risk. For global real estate investors the biggest ship is the safest and that is the major US cities. It is no surprise that the latest survey by the Association of Foreign Investors in Real Estate (AFIRE) showed that fully two thirds of respondents plan to increase their investment in the US in 2010. The cities cited as presenting the best investment opportunities in the US for foreign investors were Washington DC, New York, San Francisco and Boston. The US was also, by far the “most stable and secure real estate investment environment, capturing twice as high a share of the vote as the second nation, Germany,” according to AFIRE.

Recently, it was widely reported that China has emerged as the second largest economy in the world, surpassing Japan for the first time and trailing only the US. To be sure, China has been one of the strongest and most dynamic economies in the world over the past decade. But even though it is now the second largest economy in the world, China’s total economic output is roughly one third of the US.

The US economy is by far the largest in the world. It has attracted the lion’s share of the interest of real estate investors across the globe as the most stable location. With recovery still fragile, the US continues to attract risk-averse capital. That situation will change as the recovery becomes well established. As the financial waters calm investors will be more willing to go into smaller boats and capital will move more freely around the world. That time is not here yet, but it is approaching.

Glenn Rufrano
CEO Cushman & Wakefield


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