The Sept. 11 terrorist attacks didn’t shake foreign investors’ confidence in the U.S. commercial real estate market, according to an annual survey by the Association of Foreign Investors in Real Estate (AFIRE).

Survey respondents ranked both New York and Washington, D.C. — the targets of the terrorist attacks — as the top U.S. choices for real estate investments. Other top cities included London, Paris and Tokyo.

U.S. real estate remains strong investment

In the 10th annual survey, AFIRE members also said they are planning to increase their U.S. real estate acquisitions in 2002, dramatic decreasing their acquisitions in other countries around the world.

Forty-five percent of respondents said their primary reason for investing in U.S. real estate was a favorable risk-adjusted return. Other reasons included market fundamentals (37%), stability (23%), diversification (20%) and the U.S. economy (10%).

Many members consider U.S. real estate a strong long-term investment. "Real estate in the U.S. benefits from political and economic stability, population and job growth and a transparency of information and data. U.S. real estate has low risk and a strong legal system to protect investment. It is still the most stable market in the world," wrote one member.

The effects of Sept. 11

In the report, conducted in early October, 61% of respondents said the recent terrorist activities in the U.S. have not affected their real estate investment allocation assumptions or future plans. Of the 39% who said their decisions were affected, 35% said they more risk averse, while 32% said they were adopting a "wait and see" attitude. Another 29% said that they perceived future opportunities as a result of the attack. "We think the events have caused the recession to quicken. As a result, opportunities may arise earlier," said one respondent. "The level of government spending will lead to a quicker return to economic growth than other countries."

Fifty-five percent of respondents said the terrorist activities have not altered their perception of New York City as a desirable location for real estate investment. Only 27% of the survey respondents said their perception had become somewhat worse, and 1% said that it had become much worse. Conversely, 12% felt their perception had improved somewhat, while 4% said their perception was much improved.

Preferred property investments

For the first time in the survey’s history, foreign investors selected multifamily properties as the top investment. For the first time since 1994, office properties fell from the to second place from the No. 1 position. Industrial, retail and hotel properties ranked third, fourth and fifth, respectively.

Kingsley Associates, a real estate research firm, conducted the survey among AFIRE members. Washington, D.C.-based AFIRE has 155 members representing 17 countries including the United States, with more than $272 billion invested in cross-border real estate.