In the U.S., the commercial real estate industry is liable to take certain things for granted: 1) that America is the strongest and most popular market for foreign investment, and 2) that America will always possess that status.
The first belief is true. If you look at data from either Real Capital Analytics or AFIRE, the Association of Foreign Investors in Real Estate, the numbers speak for themselves. The U.S.–with investment hubs like New York, Washington, D.C., and San Francisco–is the overwhelming favorite among foreign investors when it comes to dollars invested. It’s also a top choice among investors looking for stability. But it’s no longer viewed as the best market for capital appreciation, and this is where the second proposition–that America will always be on top–is called into question.
The image above (you’ll need to click) shows the relative popularity of the world’s top real estate markets when it comes to capital appreciation (based on AFIRE’s most recent survey of its members). Take a look at the US (far left) in 2010, then look at its result from 2011. Now compare Brazil’s numbers for the same years.
As the Fiscal Times reports, Brazil is indeed taking a bite out of America’s portion of international real estate dollars. Though still number one overall, America is facing significantly greater competition from its South American neighbor:
…commercial property in Brazil, with its bubbling economy and safer investment environment, has become a hot spot for global investors. Sao Paulo, Brazil’s largest city, jumped to the fourth best city for real estate investment dollars in 2012, up from 26th place last year.
Like the rest of Latin America, Brazil has struggled with poverty and political strife. However, the country has emerged in recent years as an economic powerhouse with a promising real estate market. As an emerging market, and a very prominent one at that, Brazil is a very viable contender for CRE dollars. As the country prepares to host the World Cup and the Olympics, this economic growth is likely to continue.
Leading the way in foreign investment of Brazil, interestingly enough, are major U.S. firms. Indianapolis-based retail giant Simon Property Group (SPG), recently inducted into the elite S&P100, is making significant inroads when it comes to Brazil’s real estate market. As reported by Yahoo! Finance, SPG and BR Malls Participacoes S.A.–Brazil’s largest real estate firm–have agreed to a joint venture that will develop and own outlet centers in Brazil, with the first such property due to open in the state of Sao Paulo next year. Last summer, fellow retail investor Westfield surprised analysts by purchasing a $440 million stake in another Brazilian property firm.
Brazil’s impact in U.S. real estate probably won’t be felt by all, but certainly by some. As their CRE market continues to show returns surpassing those of U.S. properties–where stability comes at a higher price–some gateway markets in the U.S. may experience a decline in foreign investment. Secondary markets, lacking significant foreign investment, may not be impacted by Brazil’s new prominence.
In the end, though, the U.S. is still in an enviable position. When the economy becomes shaky, investors look for the safe choice, not the most exciting one.