Exclusive: Foreign property investors rank U.S. No 1

NEW YORK (Reuters) - Foreign investors overwhelmingly ranked the U.S. commercial real estate market as their No. 1 choice for investment this year and viewed it as the best opportunity for price appreciation, according to a survey of foreign real estate investors.

A full moon rises behind the skyline of midtown Manhattan in New York, November 21, 2010. REUTERS/Gary Hershorn

When ranked among countries targeted for real estate investment in 2011, the United States drew four times as many votes as the second-ranked Britain, according to an annual survey by the Association of Foreign Investors in Real Estate (AFIRE).

About 65 percent of the survey respondents said the United States offered the best opportunity for price appreciation, far outstripping the 10 percent who ranked China as No. 2. During the overheated market in 2006, only 23 percent put the United States as No. 1.

“As the fear of a double-dip recession has faded, investors are becoming more enthusiastic about the prospects for the U.S. economy and are taking aim at real estate investment opportunities in the U.S.,” said James Fetgatter, AFIRE chief executive.

But the selection of property types also shows that investors are not optimistic about a near-term recovery of U.S. employment.

Foreign investors ranked apartments as No. 1, retail as No. 2, and hotel as No. 3. Office, a typical favorite among institutional investors was fourth, and industrial brought up the rear.

“You talk to economists, and they’re saying that we’re going to have 9 percent or 8 percent unemployment for the next several years. That doesn’t bode well for offices,” Fetgatter said.

The survey respondents hold more than $627 billion of real estate globally, including $265 billion in the United States.

About 72 percent of the respondents said they plan to increase investment in the United States in 2011.

“The increase in the interest and perception of the U.S. was a surprise,” Fetgatter said.

For about the past year, U.S. investors have focused their investment in very select, stable, physically constrained markets, and foreign investors seem to have the same sentiment, according to the survey.

New York and Washington scored almost four times higher than third place Boston.

“They really are focused on New York and Washington and not the entire U.S.,” Fetgatter said. “They’re not hitting a lot of the market yet.”

Rounding out the rankings of countries for investment, Germany came in third. China moved up to No. 4 from No. 5 last year. France dropped to No. 5 from a tie for third place with Germany last year.

Among emerging markets, Brazil displaced China as the No. 1 choice. China came in second, displacing India. Vietnam, which was unranked last year, came in fourth, displacing Mexico, which dropped to No. 5, according to the survey. Russia, which had been among the top five emerging markets in the last two years, dropped to 10th place.

Reporting by Ilaina Jonas, editing by Dave Zimmerman