the gateway cities, but that overall, it appears an ever
increasing amount of foreign and domestic capital
is chasing too few opportunities in these gateway
markets which has the potential to create specific risks
for investment concentration, pricing bubbles and
overbuilding through new construction all married with
low returns. Diversification across more markets outside
gateway cities may help mitigate many of these potential
risks for all investors.
INVESTORS’ ATTRACTION TO GATEWAY CITIES
Many foreign investors focus primarily on gateways cites
including New York City, San Francisco, California, Los
Angeles, California, Boston, Massachusetts, Washington
D.C. and Chicago, Illinois. For various geographic proximity,
historical patterns and exposure reasons, specific foreign
investment groups dominate certain of these gateway
markets. For example, Asian investors have historically
focused on the West Coast with San Francisco and Los
Angeles as favorite areas of investment interest. As one
of the leading capitals of global finance, New York City
attracts the broadest range of foreign investors. While
not a gateway city in the strictest sense, Miami, Florida
serves as gateway city for foreign capital among Latin
American investors.
Growth expectations for these top investment markets
remains strong according to Moody Anal ytics as places
like Los Angeles, California and New York City, New York
continue to remain top employment centers in the United
States. Los Angeles alone is forecast to produce over 1.4
million new jobs over the next several decades while
New York City adds an additional 1.2 million over the
same period. San Francisco, California, and its sister cities
of Oakland and San Jose, continue to dominate regional
growth as Northern California continues to expand as the
concentration of technology companies working with big
data, autonomous vehicles, artificial intelligence and other
disruptive technologies all migrate from science fiction to
reality. Boston, Massachusetts also continues to grow with
a high concentration of technology and pharmaceutical
companies working in cutting edge biomedical fields.
However, even some of the gateway cities pose some basic
market and economic risk. More cautious investors might
shy away from markets around Washington D.C. and
Chicago, Illinois. As more pressure is placed on the national
government budget and it becomes more necessary to
bureaucratic cut waste and discretionary spending, the
greater Washington D.C. area could experience a significant
fall off in growth from the highs of the most recent past and
while public pension underfunding issues are pervasive
across the U.S., the severity of the issues in Chicago and
the State of Illinois has already resulted in net outmigration
of people from the State. This type of population shift
not only exacerbates existing and growing demographic
burdens from an aging population, but places further
constraints on State budget problems and further
limits possible solutions. Either of these could limit returns
on existing or proposed real estate investments in these
two gateway markets.
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