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Washington D.C. – Best Urban Real Estate Investment

A survey released by the Washington D.C.-based Association of Foreign Investors (AFIRE) have named Washington D.C. as the best urban real estate market in the world.  This marks the third consecutive year that Washington has received the top rating, besting London and Tokyo.  AFIRE's survey is based on member responses from its 160 investment firms in 17 countries.  

Washington has achieved this high standing largely because of its consistent stability for real estate investments.  “Of all the major urban real estate markets, Washington, D.C., has performed the best, had the lowest vacancy rates and held up better in the most recent downturn,” said Jim Fetgatter, AFIRE’s chief executive officer.  Fetgatter added, “The federal government spending on the war on terrorism has generated an increasing demand for office space not experienced in other markets.”  Currently, office vacancy rates in the D.C. area are running about 8-percent compared to the national average of 15-percent.

“The Washington area has all the attractions of a 24/7 city,” said Mark Preston, president of Grosvenor USA, referring to the mix of commercial, residential and cultural real estate.  Grosvenor USA, a British financial firm that has about $750-million invested in the Washington area, believe that other cities lack the stability of a large federal government presence and a diversified economy.  Returns in other U.S. cities, such as Los Angeles, where Grosvenor USA has heavily invested, are similar but more volatile, Preston said.  “Unlike Washington, D.C., Los Angeles doesn't have the government to support it,” noted Preston.

Besides it’s economic stability and large government presence, Washington continues to be an attractive city for foreign investors because of other factors including restrictions on the height and kind of property that can be built in various parts of the city, which ensure the downtown area will always have a sweet spot of strong demand for real estate. 

Fully leased downtown office complexes can return a steady 8-percent annual yield on investments.  The Dutch firm, Urban Investment Partners, which focuses on multifamily properties, said it makes about a 14-percent average yield on its investments in the Washington area.

Major foreign-owned properties include the Warner Theatre in downtown Washington, Dulles Corner Gateway in Herndon, Westfield Shoppingtown Montgomery in Bethesda and Chevy Chase Plaza.

Despite the current popularity of Washington, and generally the United States, for foreign investors, AFIRE doesn’t see this trend lasting too long because of the rising values for all real estate, which have risen about 11-percent per year nationwide for each of the past four years as the economy rebounded from recession.  “Now that real estate has appreciated so much in the United States, the yields have gone down,” Fetgatter said.  “It makes it tougher for foreign investors to do their deals.”

AFIRE has noted that most of its 160 firms have made plans to reduce the U.S. percentage of their total global real estate acquisitions from 71-percent in 2004 to 55-percent in 2005.  The member firms intend to invest more heavily in Japan, Eastern Europe and Australia, where prices are cheaper.

AFIRE’s sentiment are echoed by many other foreign investors, who believe that buying in much of the U.S. market is ill-advised.  “We are currently selling,” said Daniel Borger, president of the Toronto-based Daniel T. Borger Asset Management Ltd., a foreign-investment consulting firm whose clients own properties in the United States.  “The prices in today's seller's market are so attractive that our clients want to realize the profits.”