Overseas Investors Still Find U.S. Property Hot

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In 2007 Australia may once again take over the top slot. According to the 15th Annual AFIRE Survey, Aussies are likely to be the most active buyers of U.S. real estate this year. 54% of AFIRE members, who collectively own $600 billion of real estate globally and $185 billion in the U.S., chose the country as their prediction for the most active foreign investor in U.S. commercial property for 2007.

Germany, a big player in the U.S. commercial real estate market since the mid-1990s, took second place in the AFIRE survey, with 27% of members choosing the country as 2007's most active investor in U.S. commercial property. AFIRE Investors' other picks for 2007 included the Netherlands, the Middle East, Ireland, Britain, Japan, and Singapore.

"There are different stories coming out of every survey," Fetgatter says. "It all ebbs and flows with what's going on with [the countries'] own economies."

Safe Bet

Why is U.S. real estate whetting the appetite of international investors? The falling value of the U.S. dollar against the euro and other currency has little to do with the trend, Fetgatter explains, since most investors are long-term and will leverage with locally borrowed money.

Commercial real estate in U.S., however, is viewed as a safe and profitable investment by foreign investors. More than two-thirds of investors surveyed by AFIRE said the U.S. remains both the strongest and safest conduit for cross-border commercial real estate, and the country with the best opportunity for capital appreciation.

"It seems contradictory," says Fetgatter "But while, yes, you could invest in China and India and get better yields, when you factor the risk in, it might not be worth it."

"First Stop"

Foreign investors are also finding it easier to find good real estate investments in the States these days. Two years ago, 60% of AFIRE members said it was "very difficult" to find attractive real estate investments in the U.S. In the most recent survey, only 37.5% checked off the "very difficult" option. Moreover, U.S. target acquisitions for 2007 by survey respondent showed a median increase of 53% over 2006 levels.

What explains the sudden change in sentiment? Investors seem to be passing less often on more risky investments; respondents to AFIRE's survey said "value-added" real estate could comprise 25% of their portfolio in 2007, up six percentage points from 2006.

"The U.S. is the first stop [for foreign investors]," Fetgatter says. "It's a deep, diversified, and stable market."

Click here to see which countries are the largest buyers of U.S. commercial real estate.

Roney is Real Estate writer for BusinessWeek.com.