Radius Insights | Resources | 5 Reasons to Invest in Southern California Commercial Real Estate

1 | GDP with Economic Growth

We’ve highlighted two major aspects of California’s economy: 1) it’s diversity and 2) it’s growth in recent history.

California’s Robust Economy

It is widely known that California not only sits at the top when it comes to GDP nationwide but also worldwide. California’s GDP is the 5th largest in the world (compared to most sovereign nations). If Southern California were a sovereign nation alone, its economy of 1.6 trillion would surpass all of Brazil’s economy.  

Fueled by two of the USA’s largest metropolitan areas, Los Angeles-Long Beach and San Francisco-Oakland, California is a global economic powerhouse. To put this into perspective, the Los Angeles and San Francisco metropolitan areas account for about half of the total GDP created in the state. Furthermore, Los Angeles metro, with just under $1 trillion produced in 2019, consistently generates 2x more than San Francisco.

Economic Growth in California

While California’s GDP consistently ranks in the upper echelons of the world, it also has one of the most stable, growing economies in the United States. In the last 20 years, California’s GDP expanded by nearly 60%, increasing from nearly $1.71 trillion in 2000, to an annual average of $3.09 trillion, ranking in the top 10 of highest states for GDP growth in 2021. As an investor, it is important to find regions that are economically stable; however, in order to maximize returns, signs of prolonged fiscal growth are imperative.

An area where California leads in economic growth is with the green economy with San Francisco as the #1 city for green jobs in the country. The state itself has the 4th least carbon-intensive economy in the country, with coastal communities from the north to the south, including the Santa Barbara and South Coast regions, leading the way. As concern around climate change grows, so does the need for green jobs. In fact, these jobs are expected to grow by 8% in the next decade.

2 | Foreign Direct Investment (FDI)

California attracts robust investments from foreign businesses due in large part to its thriving technological industry, financial resources, massive consumer markets, workforce, ports and location. The primary countries contributing to the overall investments in the state are China, Japan, the UK and the Netherlands.

Thanks to the aforementioned factors, California ranks #1 in total FDI nationwide with over $41.5 billion according to the US Bureau of Economic Analysis.

More specifically, California’s FDI is responsible for 843,900 jobs in the state. The leading contributions of foreign investments for commercial real estate were from China and California’s neighbor, Mexico. Bisnow.com cites that a majority of the international CRE investments were for commercial rental properties and business investments.

3 | Opportunity

The Opportunity Index ranks California 16th with a score of 56.7, which is above the national average of 53.2. The Opportunity Index is an annual measurement of 16 key indicators at the state level for economic, educational, and civic metrics that contribute to / hinder opportunity and economic mobility.

While it is true that California is one of the more expensive states to live in, there are also better public services for its residents, key among them healthcare. For example, The Golden State is ranked as the #1 state for public health which measures health categories like mental health and mortality rate. Year-round mild weather, particularly in Southern California, compared to much of the country certainly contributes to a more active, healthy population, keeping healthcare resources plentiful and affordable as a whole. As such, California is a very attractive state for employees and employers looking to hire the best talent.

California also enjoys a median income of $80K. That is $14,288 (12%) more than the national average. This provides more expendable income for the average consumer to fuel the retail economy in particular, which is one of the primary contributors to the state’s GDP, $309 billion reported in 2021.

In addition to the opportunity index and above-average median household income, California is a gold mine for top talent as mentioned before. The state is home to some of the most respected higher education institutions in the world including Stanford, Berkeley, UCLA, and California Institute of Technology, to name just a few. California’s public k-12 education is also ranked in the top 20 states nationwide. With a churning higher education system, the state hosts a diverse supply of domestic and international talent that funnel into many business sectors.