For decades, larger metropolitan markets, particularly coastal markets, have attracted the vast majority of real estate investment dollars. But now, in the age of COVID, investors are shifting their attention from these big cities and are pursuing opportunities in smaller markets, according to DLA Piper’s 2020 Global Real Estate State of the Market Survey.
The global law firm’s survey, which examines the views of CRE experts on the trajectory of the economic recovery, investment trends, geographic hotspots and general market outlook, revealed the U.S. cities that respondents believe are the “ripest” for investments.
In 2019, respondents picked larger metropolitan areas including Chicago, Los Angeles, New York City, and San Francisco. This year, however, Austin ranks as the top city for investment, with 49% of respondents identifying the capital of Texas as the most attractive.
Nashville took second place with 43%, followed by Denver at 40%, Charlotte at 37%, and Raleigh-Durham at 32%. By comparison, larger cities are experiencing a significant drop in attractiveness: Los Angeles at 12%, San Francisco at 9%, Chicago at 6% and Philadelphia at 1%.
“One of the interesting trends we’ve seen emerge from COVID-19 is that some investors are moving away from larger metropolitan areas,” said John Sullivan, US chair and global co-chair of DLA Piper's Real Estate practice. “This year’s survey indicates that smaller cities with affordable suburbs are more attractive to many investors, companies, and people. There has always been demand in these cities, but COVID-19 has likely accelerated that trend and may drive a new wave of investment.”
The survey also found that respondents remain enthusiastic about the volume of capital in the CRE market, even with a shaky, unpredictable economy. Nearly six out of 10 respondents (58%) cited an abundance of available investment capital as the top reason for an optimistic economic outlook, an increase of 15% from the 2019 Survey.
Respondents indicated that private equity will be particularly active over the next 12 months. However, only 21% percent of respondents believe foreign investment in the U.S. will be strong next year, a 19% drop from last year’s survey. The firm speculated that COVID and the ongoing travel limitations could be the reason for this decrease.
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