Los Angeles and the Inland Empire are capturing foreign investment attention. New research from CBRE has found that Los Angeles is second in the nation, behind Manhattan, for inbound investment, with $1.7 billion invested, while the Inland Empire is listed as the top growth market for foreign capital, up 266% year-over-year.
“For each of the last five years, Los Angeles has been a top destination for foreign and domestic investors for a few reasons. First off, it’s one of the six primary gateway markets that still feels “affordable,” Todd Tydlaska of CBRE, tells GlobeSt.com. “Comparatively speaking. Second, L.A. was late to the recovery this cycle compared with tech-driven markets such as San Francisco, Seattle and Boston. Third, no single industry is leading the economic recovery in L.A. Four, fundamentals are strong and there are significant barriers to entry in the Greater LA market, meaning that investors are underwriting continued strong leasing fundamentals. Five, this area boasts a tremendous population base that feeds the market locally and regionally; and last but not least, the ports of L.A. and Long Beach are a huge driver of economic activity and growth.”
Los Angeles had seen significant investment from Chinese capital, but Chinese government restrictions have limited foreign investment for the last two years. The regulation has had an impact on foreign capital investment in the market, which is a gateway to China.”Capital controls in China have effectively taken the Chinese bid out of the market and also impacted ongoing development projects like the Oceanwide project in DTLA,” says Tydlaska. “Overall, there has been a slow-down as China has made it much more difficult to get money out of the country and into the U.S.” Currently, Canada leads US foreign investment activity, followed by Isreal and Germany.
The Inland Empire’s thriving industrial market has landed on the foreign investment radar. “The Inland Empire is to industrial what Manhattan is to office product – that is to say it is the core market in the U.S. With incredible leasing fundamentals and increased fund flows to industrial and multifamily product, those two product types are the most attractive to capital right now,” says Tydlaska. “Generally, we are seeing a strong push from institutional capital into multifamily and especially industrial assets. The Inland Empire is where all major corporations and logistics/ e-commerce companies are located as it features the newest state-of-the-art functional buildings. We believe it is the strongest industrial logistics market in the U.S.”
California markets are going to continue to be a target for foreign capital. “There is tremendous liquidity right now for both equity and debt. Southern California remains a first-choice location for capital, though so much product has traded in the past four years, it’s proven difficult to maintain the same transaction levels,” says Tydlaska. “We anticipate continued foreign investment, but that investor base is coming from other parts of Asia—Japan, Singapore, Korea—South America, Europe and the Middle East, with China effectively out of the market. It will be interesting to follow the impact of unrest in Hong Kong as that has been a clearinghouse for capital coming out of China. We anticipate continued growth of appetite for Inland Empire product from all over the world but competition is stiff. It is often hard for foreign investors to compete in the Inland Empire when buying assets as there is so much capital domestically also focused on this area.”