Miami, Minneapolis, Phoenix Emerge As New Targets For Foreign Investors

Global investor commercial real estate purchasing activity picked up in the second quarter with total market volumes increasing 24% from the first quarter to $108 billion, according to data collected from more than 60 countries by Jones Lang LaSalle Capital Markets Research in London.

This level of investment reverses the slight dip in activity recorded in the first quarter when volumes reached $87 billion.

REITs and unlisted funds were the second quarter’s biggest net buyers of property.

London remains the world’s most sought-after location, according to the report, with the United States moving back towards the $40 billion transactions mark in the second quarter, with 35% of deals involving cross-border parties.

While New York, San Francisco and Washington DC have long topped the target list for foreign investors, a number of second-tier U.S. cities have entered the Top 10 list for cross-border purchases into the United States, including Miami, Minneapolis and Phoenix.

“Core U.S. real estate throughout primary and many secondary cities remained very attractive to both domestic and foreign investors, based on absolute initial yields on offer, and their spread over record-low Treasury rates,” said Josh Gelormini, vice president, Americas Research, Jones Lang LaSalle. “The U.S. is also benefitting from a safe haven strategy, as other global markets appear on shakier ground, particularly given the ongoing Eurozone crisis.”

Although U.S. economic growth appears relatively weak, compared with most other fully mature economies, U.S. growth is much stronger, and investment into real, tangible assets in the country is attractive as a defensive strategy in volatile, challenging economic and market conditions in developed and emerging countries alike, Gelormini said.

Globally, the retail sector increased investment volumes duirng the second quarter by 66% to $31 billion compared to the first quarter of 2012. This investment level trails behind the office investment level at $50 billion, but recognizes the demand for prime assets.

The hotels sector is predicted to have a busy second half as global deals progress and close, while niche assets such as data centers will attract more attention as corporates focus on core business activities and look to offload non-core real estate assets.

Although half year volumes are slightly below the level of 2011, there has not been a dramatic decline in investor activity or capital raising, although transactions are taking longer to close and debt financing remains an issue, Jones Lang LaSalle reported./

Given this background Jones Lang LaSalle expects full year volumes to be broadly consistent with 2011 at $400 billion. If pricing in core locations continues to rise, the many opportunities available in secondary will attract increased attention and this may provide an additional boost to what is usually the more active second half of the year.

Cross-border Purchases, Q2 2012
US Market US$Mil
1 New York $1,014
2 San Francisco $685
3 Washington DC $643
4 Miami $554
5 Chicago $529
6 Dallas $514
7 Seattle $431
8 Minneapolis $384
9 Boston $318
10 Phoenix $317


Source:  CoStar