D.C., traditionally takes a back seat to world
cities like London, New York and Tokyo when
it comes to real estate investment.
likely to change.
to a proposed $1 trillion wave government spending,
investors are flocking to D.C. for opportunities
in the commercial and residential real estate
markets. All these new programs will need offices,
after all, and their employees will need places
year, Washington leapfrogged London for the
first-place ranking in the world's best cities
for real estate investment. But don't count
out the world's financial capitals just yet--even
with massive financial troubles in London and
New York, those cities finished second and third,
It's the appeal of long-term stability, and
fears that emerging countries are going to take
a harder hit. While the U.S. property market
sputters, China is poised for its worst deflation
in a decade, focused heavily on property price
declines, according to Deutsche Bank.
the U.S. and U.K., part of it is flying back
to safety," says François Ortalo-Magne, a real
estate professor at the Wisconsin School of
Business. " For China and India, there's a sense
that we went there and tried it, but it wasn't
Forbes' rankings come from the Association of
Foreign Investors in Real Estate, a research
association that tracks where member investors
are finding the best opportunities around the
world. AFIRE surveys its 200 members, who collectively
hold $700 billion in cross-border real estate.
cities surged up this year's list: San Francisco
moved to sixth from 24th last year; Los Angeles
moved to seventh from 19th; Houston moved to
eigth from 32nd. Cities in the Asia Pacific
region dropped: Sydney fell to 11th from ninth;
Hong Kong dropped to 22nd from 10th place.
year, investors know that valuations can't be
trusted. In 2008, the American residential market
fell 19%, according to the Case-Shiller index;
U.K. prices dropped 16% according to Nationwide,
a U.K. builder. Commercial values in both countries
have started to soften due to recessions on
either side of the pond.
2008, investors to spend tried to call the bottom
and gambled in emerging markets. This year,
they're looking at premium locations in cities
with proven track records.
don't feel comfortable that we are able to identify
what value is," says Richard Kessler, chief
operating officer of Benenson Capital Partners,
a global real estate investment group. "Having
said that, if an opportunity exists on Park
and 57th Street, or something we've always wanted
to own on Pennsylvania Avenue in D.C., or some
other very strategic long-term asset, we would
look at it."
makes 2009 the year of playing it safe and not
chasing exotic opportunities in far-flung locations.
It's even injected a sense of humility into
the investing world.
used to be a rivalry between New York and London,"
says Kenneth Patton, divisional dean of the
New York University Schack Institute of Real
Estate. "The subject has shifted to the fact
that we're both in the same lifeboat, and maybe
some investors play it safe, others are content
to wait out the real estate downturn entirely.
of the [usual] participants are sitting on the
sidelines," says Kessler. "There's a lot of
capital, but everyone is uncomfortable about
deploying that capital."
their part, the optimists think 2009 might be
the year that sideline money starts to come
back into the marketplace--and, especially for
the cities on this list, it will come back in
a flood, not a trickle.
a lot of money that needs to be invested, says
Ortalo-Magne. "The instant people feel an inkling
of a turnaround, money is going to flow in."
that inkling comes in 2009 or 2010, however,
is an altogether different question.
cities investors will target in 2009:
Commercial and residential real estate often
function as different markets, but both
need low unemployment and strong job growth
to puts money in the pockets of consumers
and help businesses to succeed. At present,
D.C. has the lowest unemployment rate in
the country--4.1%, compared to the 7.2%
national average. With President Obama's
stimulus package recommending $1 trillion
in new spending, it's unlikely government
jobs--and those they support--will be leaving
the District anytime soon.
A pure opportunity market. Home prices in
central London continue to decline at a
rate of 3.5% per month, according to Knight
Frank, while commercial properties have
been slipping at 2% per month. The office
for market space is particularly overbuilt,
according to Knight Frank, and vacancy rates
have steadily inched upward. Even as the
country sits firmly in recession, London
is a market where investors feel safe making
long-term plays and believe they can get
reasonable discounts on prices.
Lingbeek- van Kranen/iStockphoto.com
The New York residential market,
which most termed bulletproof during the
general housing downturn, has finally started
to slip, with sales volume down by as much
as 75% in some neighborhoods, according
to Miller Samuel, a Manhattan-based appraisal
firm. According to Cushman Wakefield, a
New York-based commercial real estate firm,
prices have started to slip in even premium
areas like 57th Street or Soho, though this
hasn't yet appeared in quarterly reports.
Japan knows a thing or two about dealing
with a real estate collapse. Their "lost
decade" of the 1990s came as the result
of a speculative real estate bubble. As
a result, Japanese investors largely avoided
buying and issuing the subprime products
flowing through American and European institutions.
That makes Tokyo a safer bet in terms of
determining reasonable valuations, since
there are fewer unknowns in the property
growth has slowed from 9% to 7%, and the
global slowdown threatens to sink that rate
further. According to Deutsche Bank, China
is poised for its worst deflation in a decade,
driven by property price declines. What
makes Shanghai attractive however, is the
chance at getting discounted properties
in a market that overheated in the last
decade. Unless you believe China won't be
important by the time the global economy
bounces back, it's difficult to bet against
a blue-chip locale like Shanghai, which
will likely have a quicker recover cycle
than secondary cities like Shenzhen.
San Francisco metro area residential
prices have fallen by 25% in year-over-year
terms, according to the National Association
of Realtors. On the commercial side, tech
and financial services firms have been downsizing
their operations--this in a year when 7
million square feet of new office space
is projected to come onto the market, according
to Newmark Knight Frank. Considered together,
these factors makes 2009 a buyers' market.
Last year, only the most contrarian of investors
would have mentioned Los Angeles as a site
for real estate investment. One of America's
hardest-hit subprime areas, bad loans and
one of the nation's highest foreclosure
rates destroyed property values and zapped
consumer spending as housing troubles spread
to other sectors of the local economy. For
good reason, it received a bearish 19th
ranking last year. However, a flurry of
transaction volume in the residential sector--sales
surged 102%, according to Radar Logic, a
derivatives firm--has that market hinting
at a bottom.
Whether or not you believe French
President Sarkozy's claims about his tough
regulation helping the country avoid the
mortgage bubbles of Spain and the U.K.,
there are some things to like in France's
property sector. According to Knight Frank,
a U.K. property investment firm, residential
prices were up 2.8% last year, while Paris
commercial properties have a vacancy rate
of 5%, one of the lowest on the continent.
While prices are expected to flatten and
perhaps dip, it does not look like a market
is primed for the sort of U.K.-, U.S.- or
Spanish-style collapse, where properties
disintegrate by double-digit values.
a time when commercial rents have decreased
across the U.S., Houston's market has improved.
In the last three years, most cities experienced
a peak in 2007 and 2008, then a bust that
returned prices to 2006 levels. In Houston's
case, specifically in the office market,
prices grew from $21.39 a square foot in
2006 to $29.07 a square foot in 2009, a
36% increase, according to Newmark Knight
Frank. The city continues to attract new
residents, and Texas's low business costs
make it an attractive place for corporate
relocations, which require real estate.
& Colin McKie/iStockphoto.com
In a global economic boom, it's great to
have the world's biggest port, but when
shipping slows, so does your economy. After
jumping in rank from 24th to sixth between
2006 and 2007, Singapore has slid as an
investment market. The shipping sector and
supporting sectors of office and commercial
space have slipped with decreased worldwide
volume. For example: The Baltic Dry Index,
which measures bulk carrier shipping worldwide,
is at an abysmal 1,760 after climbing to
19,700 in June of 2008. While that has dampened
investors' take on Singapore, it's still
seen as a strategic link in Asia Pacific
with a good shot at rebounding.