Do commercial real estate (CRE) investors have faith in Southern California? Lately, global investors have been expressing an increased interest in Southern California, setting their sights on Los Angeles in particular. For proof of this, one has to look no further than China, a country that has poured billions of dollars into CRE in downtown Los Angeles. Southern California is also in the midst of an industrial boom; Silicon Valley operations are trickling down to SoCal, partly due to San Francisco’s astronomical real estate prices, which continue to rise. Los Angeles, in contrast, was “late to the recovery” after the 2009 recession and according to many, still has room for rents to rise. This makes L.A. an affordable place for businesses and startups — American or otherwise — to lay their ground.
In fact, according to a recent article by Bisnow, published earlier this month, in the first half of 2017 Los Angeles surpassed Manhattan as the largest market in the nation for deal volume. This shift was brought on by LA’s record-low unemployment and healthy fundamentals that attracted investors early this year.
Despite the high potential of Los Angeles in the CRE sector, many American real estate professionals aren’t wholly confident in the region’s potential for growth. Developers from six different regions in California were asked how they feel about Southern California as a CRE prospect; many reported that they were optimistic about the region’s capacity for growth, but just barely. “The trend in positive developer sentiment” has weakened, according to the report, which was conducted by UCLA in late 2016 and early 2017. Of course, this isn’t to say that developers feel that the commercial real estate sector is failing — they simply don’t believe that it will be any better or worse in the coming years than it is today.
But how did American developers and global developers come to feel so differently about investment in Southern California? It all boils down to perspective. Americans may feel differently than international real estate professionals because they’re on the inside looking out; perhaps anecdotal information about the market informs their opinions about whether or not Southern California is bankable. Whether it’s politics, the economy, or developers’ own views of the region, factors like these may not have as much of an influence on how international investors view the region, since they tend not to have access to that kind of information (or preconceptions).
Also, according to recent studies, Los Angeles was the most appealing city in America for international commercial real estate investments — a telling result, considering 54 percent of cross-border investors preferred North America for the deployment of real estate capital in 2017, up from 37 percent the previous year.
If over half the world wants to invest in America, and LA is their goal, then Southern California is in a prime position for CRE growth.
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