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The Benefits of an Allocation to Asian Real Estate for Institutional Investors
by Graeme Newell and Asia Pacific Real Estate Association (APREA)
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This report highlights the benefits of an allocation to Asian real estate in an institutional investor's portfolio. The features and investment characteristics of both listed real estate and unlisted real estate in Asia are highlighted. Performance analyses highlight the added-value role of Asian real estate in a portfolio, particularly in the post-global financial crisis environment and with the current economic concerns regarding the United States and Europe. A blended analysis is carried out to confirm the role of both Asian listed real estate and unlisted real estate in an institutional investor's portfolio. For more information on this title, click here to go to the IREI Bookstore.

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U.S. Commercial Properties Top Pick
Foreign investors continued to see the United States as the top choice for apartments, hotels, shopping centers, warehouses and offices in 2012, according to the 20th annual survey of Association of Foreign Investors in Real Estate (AFIRE) members. Although the United States is still regarded as providing the best opportunity for capital appreciation, its first-place score shrank from 64.7 percent in the 2011 survey to 42.2 percent this year.

Respondents named New York City, again, as the number one market for real estate investments, followed by London, which jumped from the third position. Washington, D.C., dropped to the third spot from number two. Sao Paulo, Brazil, emerged to be among the global leaders in this year's survey. The city was named the fourth best market for real estate investments for 2012; it held the 26th place in the previous year's survey. Brazil as a whole jumped 14.2 percentage points, from fourth place in 2011's survey, to be named the second best country for capital appreciation, pushing China into third position. San Francisco jumped to the fifth place of top global cities for foreign investments in 2012 from 10th place a year ago.

"Foreign real estate investors have made clear there is considerable pent-up demand for U.S. real estate awaiting better real estate fundamentals and relief from FIRPTA regulations," says James Fetgatter, CEO of AFIRE. "If the investing environment improves, the United States is poised to return to its 'safe haven' status."

AFIRE'S survey respondents hold more than $874 billion of real estate globally, including $338 billion in the United States. Some 60 percent of respondents said they plan to increase their investment in U.S. real estate in 2012, down from a record 72 percent in 2011. Some 42.2 percent said they believed the United States in 2012 would offer the best opportunity for the price of their commercial real estate investments to increase, down from 64.7 percent the previous year's survey.

For the fourth consecutive year and by a significant margin, U.S. multifamily remains the favorite property type. Foreign investment represents 5.8 percent of all multifamily purchases, up from 3.7 percent in 2010, according to data by Real Capital Analytics. Warehouse and distribution centers ranked second, up from number five the previous year. Office properties were ranked third, up from the fourth position. Retail properties slipped to number four from number two. Hotels ranked fifth, down from the third position in 2011.

The AFIRE survey was conducted in the fourth quarter of 2011 by the James Graaskamp Center for Real Estate, Wisconsin School of Business.

Top Global Cities for Foreign Investment in 2012 (rank in 2011)

1. New York City (1)
2. London (3)
3. Washington, DC (2)
4. Sao Paulo (26)
5. San Francisco (10)

Top U.S. Cities for Foreign Investment in 2012 (rank in 2011)

For the second consecutive year, New York has been named investors' number one U.S. city for their real estate investment dollars.

1. New York City (1)
2. Washington, D.C. (2)
3. San Francisco (4)
4. Boston (3)
5. Los Angeles (5)

-- Andrea Waitrovich

Does 2012 Have Potential?
A slow yet steady growth in commercial real estate property sectors has been forecast by Grubb & Ellis Co.'s new 2012 national real estate forecast report. Grubb & Ellis expects GDP growth in the range of 2.0 percent to 2.5 percent in 2012, still below the U.S. economy's long-term potential of around 3.0 percent. The unresolved European sovereign debt crisis and the political stalemate in the United States will weigh on growth.

The sovereign debt crisis in Europe could extend to U.S. banks, reducing their willingness to lend, while shrinking demand overseas would hurt U.S. exports, states the report. Expect the U.S. economy to muddle through, adding an average of 125,000 net new payroll jobs per month this year -- the same pace as 2011.

According to Grubb & Ellis, the five major property types are expected to move ahead in the following sequence this year:

1. Apartments: With the housing market at least a year away from a robust recovery and job growth on par with 2011, the apartment market will tighten further in 2012. Look for vacancy to decline by another 40 basis points to end 2012 below 5 percent, on the heels of the robust 130 basis point drop in 2011.

2. Hospitality: Look for strong revenue streams to fall short of their impressive gains in 2011 but not by much.

3. Industrial: Both demand and supply will accelerate in 2012, particularly supply as speculative development surges. Vacancy will fall further to end the year below 9 percent. Look for a 5 percent gain in rental rates for warehouse/distribution space.

4. Retail: Consumers will not be star players in the economic recovery in 2012. Look for slow, spotty improvement in retail property markets, with vacancy falling modestly.

5. Office: The sluggish recovery will extend into 2012, with the vacancy rate falling 110 basis points to end the year below 16 percent, still above equilibrium. Expect little movement in rents with the exception of supply-constrained and/or technology-driven markets.

Gradual improvement in leasing markets will encourage investors to expand their sights, begun tentatively in the past year, toward riskier assets and markets. This, combined with continued appetite for core assets, will boost sales volume by another 25 percent in 2012.

In addition to a further breakdown of each market, Grubb & Ellis created a series of momentum indices, one each for the office, industrial and retail leasing markets and the investment market. For further information on the markets and to read the results of the analysis on the indices, visit the Grubb & Ellis website.

-- Denise DeChaine

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"Overall, we do not expect 2012 to be a repeat of 2008, but there will be more disappointments than pleasant surprises in the
new year."
-- Matt Anderson, managing director, Trepp, 2012 U.S. Banking Sector Outlook: Happy Days Are Gone Again

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IREI Monthly is edited by Denise DeChaine with contributions from the IREI editorial department. Send us your comments, insights and news items.