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AFIRE: ‘Washington, DC has fallen out of favor’

The US capital has dropped off the list of foreign investors’ top 5 US cities for the first time in the 25-year history of the real estate association’s annual survey.

While the US remains a strong market for foreign investors, real estate demand has declined in the nation’s capital, Washington, DC, according to a new survey from the Association of Foreign Investors in Real Estate (AFIRE).

“Both globally and domestically, Washington has fallen out of favor,” the real estate association said in its new report. “For the first time since the survey began in 1992, it dropped from the list of investors’ top five US cities.”

Moreover, the city has been absent from foreign investors’ top five global cities since the 2013 survey, and fell from eighth place globally last year to 15th place this year.

“It’s a combination of being very expensive and also a lack of supply,” explained James Fetgatter, chief executive of AFIRE, which is based in Washington. “Foreign investors like the urban core; the DC urban core is very well-defined, with a pretty high barrier to entry. There’s not a lot of product available and what’s available is very expensive.”

By comparison, New York – which ranked as the top city both in the US and globally for foreign investors – has more space available, he said. “A lot of it is perhaps Class B product that could be refurbished to Class A, and there’s a lot more retrofit opportunities in New York than in Washington. We also have height limitations here within the city, so you can’t do New York-style buildings like you can there.”

An additional challenge is the federal government’s consolidation as a real estate tenant, with agencies moving their offices into government-owned facilities and overall cutting back on their space needs. “There’s been some shrinkage of that tenant,” said Fetgatter. By contrast, other markets have shown greater appeal because of the growth sectors in those cities, such as technology in Seattle, which ranked fourth among US cities in this year’s survey.

That said, the incoming president is expected to be boost for the Washington market. “There’s an indication that the Trump Administration will spend more on defense, and that bodes well for Washington in the future. When the defense industry is getting a lot of money, Washington does well.”