No more sleepy San Diego, California. The city has awakened and real estate investors have noticed. According to the Association of Foreign Investors in Real Estate (AFIRE), for the first time ever, San Diego made the list of the top five U.S. cities attracting foreign investors’ commercial real estate investment dollars.

The rest of the results: Washington, DC; New York City; Los Angeles and San Francisco in first to fourth places respectively. San Diego rounded out the top five and edged out Chicago which had remained on the list of the top five U.S. cities for real estate investment for seven years.

“With new residential construction, the rejuvenation of the Gas Lamp Quarter, the development of several full-service hotels, and the new Petco Ballpark, San Diego has become a vibrant, 24-hour Central Business District,” says Albert P. Behler, President and CEO, Paramount Group, Inc.

Just last year, the group purchased the 27-story, Class A, First National Bank Building in San Diego.

“San Diego benefits from a broad-based economy that has been transformed from a military-based economy to one powered by defense, aerospace, biotechnology, and telecommunications,” says Behler.

Behler believes three factors benefit San Diego-a rapidly growing-population, world-class research facilities and proximity to Mexico and its robust manufacturing center. Thus, “San Diego is no longer a sleeper.”

The 14th annual survey was conducted by Kingsley Associates. Members of AFIRE, who collectively have nearly $470 billion invested globally, were surveyed.

The top five global cities for real estate investment are: London; Washington, DC; New York City; Paris and Tokyo, from first to fifth respectively.

“As a global financial center, London benefits from the strong attributes of liquidity, market transparency and favorable lease structures that appeal to many international real estate investors,” says David Jackson, Director Fund Management, Prudential Property Managers, Ltd.

According to Jackson, vacancy rates fell from 16 percent two years ago to below nine percent which is continuing to promote rental growth in the West End and it’s expected the rest of the City will follow. There will be an even greater attraction to London as it is the site of the 2012 Olympics.

AFIRE has more than 150 members representing 17 countries. While the respondents of the survey continue to see the U.S. as a stable and secure place for real estate investments, this year, however, they plan to invest more globally than in previous years. According to the survey, Western Europe and the UK are markets where investors will seek real estate. Investors plan to spend approximately $45 billion globally with 47 percent of that going toward U.S. properties. In 2005 the percentage was 55 percent.

Capital appreciation of the investments rather than cash returns is what typically drives investors to a market. The top five countries providing the best opportunity for capital appreciation are: the U.S.; China; Germany; UK and Canada.

“Depending on an investor’s risk appetite, real opportunities to invest now exist in many different regions and product types. At the same time, for many reasons including transparency, market fundamentals, and the sheer size of the market, foreign investors have expressed an extremely high degree of confidence in the U.S. real estate market going forward,” says Mark Baillie, of Macquarie Real Estate, Inc. and the newly-elected chairman of AFIRE.

Another interesting discovery-office buildings are the most desirable product for foreign investors, according to the survey. Multi-family residential is the least desirable, a complete reversal from past years when this type of product ranked at the top. Hotels are the second most favored product.

Published: January 30, 2006

Use of this article without permission is a violation of federal copyright laws.

Phoebe is a writer, speaker, and author. She is the Director of Business Development for Quality Service Certification and a trainer in customer service for the real estate industry. She is a Realtor with The Guiltinan Group, a division of Prudential California Realty. Her articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, and Rancho Santa Fe Review in San Diego. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe's writing is also featured in Donald Trump's book: The Best Real Estate Advice I Ever Received. She is the author of If the Trash Stinks, TAKE IT OUT!: 14 Worriless Principles for Your Success. Contact Phoebe at 858.259.3646 or . Visit PhoebeChongchua.com for more information.