5 Reasons to Invest in Southern California Commercial Real Estate


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

May 30, 2022

California’s GDP is 4th largest in the world

California, the nation’s most populous state and the most widely traveled, boasts incredible geography (think The Sierra Nevada mountain range, Yosemite National Park and Half Dome, to name a few) including the vast Pacific coastline sprayed with sunny beaches and massive metropolises like Los Angeles, San Diego and San Francisco. While the aptly-named Golden State symbolized opportunity during the gold rush in the mid-1800s, today it continues to be a beacon of economic prosperity in the modern era.

Sure, California’s iconic global status is due in big part to the Hollywood entertainment machine and the booming tech industry in the Bay Area, Silicon Valley, Silicon Beach (Santa Monica and West Los Angeles) and emerging tech hot springs in the South Central Coast including Goleta and Santa Barbara. California also boasts many other thriving business sectors including agriculture, aerospace and biotech.

Indeed California possesses favorable conditions for investors and economic opportunists looking to invest in the region, particularly in commercial real estate.

Investing in Southern California Commercial Real Estate 

Are you planning to invest in Commercial Real Estate in 2023 and beyond? Here are five sewed-up reasons why investing in Southern California CRE might be a good and beneficial move.

There are numerous reasons to invest in Southern California commercial real estate, including a strong economy, a large population base, a wide range of properties, Foreign Direct Investments, and the thriving tourism industry, among many others.

We’ve highlighted some of the key factors that make California—especially Southern California and the South Central Coast region—a desirable commercial real estate market to expand and bolster economic portfolios, including economic statistics, foreign investments and tourism.

Reasons to Invest in Southern California Commercial Real Estate - Radius Group 2023

1 | GDP with Economic Growth

The Gross Domestic Product (GDP) has become one of the most critical indicators of a region’s development and success. A high GDP pinpoints a state’s ability to produce and sell goods and services and is often used to measure a state’s living standard. In recent years, Southern California’s GDP has been increasing, making it one of the most attractive investment destinations in the world.

California’s Robust Economy

Southern California’s GDP has been steadily increasing in recent years. In fact, in 2018, the state’s GDP grew by 6.5%, far exceeding the national average of 4.2%. This solid economic growth is expected to continue in the coming years. Thus, more businesses will open and expand, increasing the demand for CRE.

California is set to be the fourth-largest economy in the world, overtaking Germany. As of 2022, the state’s nominal gross domestic product (GDP) was estimated at $3.598 trillion, making it more prominent than the GDPs of countries such as France, the United Kingdom, India, and Italy. (Do we have an updated assessment for 2023?)

The state’s diverse and rapidly expanding economy has driven this impressive growth rate. California is one of the world’s leading centers of innovation, and the presence of Silicon Valley bolsters its tech-heavy economy.

Economic Growth in California

California has attracted substantial investment opportunities for commercial real estate (CRE) due to its strong economic growth. With its GDP consistently ranking in the upper echelons of the world, this has provided an excellent opportunity for investors to take advantage of California’s growth potential.

California’s economic growth has been fueled by several factors, including its diverse and thriving economy, strategic investments, and strong public-private partnerships. The state’s financial success has been bolstered by its robust technology sector, which has attracted investment from some of the world’s largest companies.

But note that, as an investor, it’s essential to identify areas with sound economic foundations; however, for the best returns, it is necessary to seek regions with substantial fiscal growth potential. Southern California is no exception when it comes to such economic growth.

2 | Foreign Direct Investment (FDI)

Did you know California is ranked as one of the premier places in the United States to invest in? FDI-relevant macroeconomic data consider California a Foreign Direct Investment magnet, receiving the most significant percentage of inbound Greenfield FDI projects across all US states.

FDIs are investments made by companies or individuals outside the United States in the domestic economy. They are attractive to investors because they can provide a stable source of capital and access to new markets, technology, and expertise.

California has long been a hub for FDI, attracting $119 billion in investments. This is primarily due to California’s size, population, and business-friendly climate. It is home to the country’s largest economy, boasting a highly educated labor force and diverse industries.

The state has also become increasingly attractive to foreign investors due to its favorable tax laws, government incentives, and robust infrastructure. In addition, California’s housing market remains strong, which is a major draw for international investors due to its proximity to the United States and the rest of the world.

As a result, California has seen a sharp increase in foreign direct investment over the past decade, with investments from countries such as China, India, Japan, and the United Kingdom leading the way. Hence, it has become a top state for FDIs in the United States.

3 | Opportunity

California has scored above the national average of 53.2 in the Opportunity Index, earning a rank of 16th with a score of 56.7. The Opportunity Index measures the state’s economic prospects and potential for real estate investment.

It combines economic, demographic, and housing data to overview the state’s financial health comprehensively. In recent years, California has seen an impressive increase in its Opportunity Index, making it one of the best places to invest in CRE.

The state has consistently been ranked as one of the most desirable places to live and work in the United States, and its economy is one of the most powerful in the world. A new report from WalletHub has released an “Opportunity Index” that ranks California as the number one state in the nation for opportunity.

The Opportunity Index measures various factors, such as job opportunities, career advancement potential, the financial health of residents, and quality of life.

On all of these measures, California ranked highly. The state was ranked second in job opportunities, fourth in career advancement potential, and fifth in residents’ financial health. It also topped the list regarding quality of life, with the highest rating on all criteria.

The report noted that California’s high quality of life was due to its many amenities, such as beaches, mountains, and other attractions. It also highlighted the state’s diverse job market, noting that it’s home to many large companies and startups and a wealth of small businesses. Additionally, the report noted that California’s high median income and low unemployment rate contribute to its overall high ranking on the Opportunity Index.

Tourism in the Golden State - Reasons to Invest in California Commercial Real Estate

4 | Tourism in the Golden State

From Disneyland Park and the Golden Gate Bridge to the Redwood Forest and every breathtaking scenery in between, California is famed for being one of the most popular tourist destinations in the world and one of the top two states in the US.

California also boasts some of the best cities in the world. Each town, from Los Angeles to San Francisco, has its own unique character and style that attracts visitors from all over the globe.

The state’s booming tourism industry (an essential factor in any real estate investment decision) has made California a great place to invest in CRE. With stunning natural beauty, vibrant cities, and countless attractions, California is a premier destination for tourists worldwide.

The tourism industry in California is an essential driver of economic activity. According to Visit California, the state’s official tourism promotion organization, tourism generated over $140.6 billion in 2018 and is set to produce about $154.4 billion in 2023. Investing in CRE in California can be a great way to capitalize on the tourism boom.

The tourism industry is also a great source of revenue for CRE investors. Hotels, restaurants, retail stores, and other businesses catering to tourists provide a steady income stream for CRE owners. Additionally, the demand for residential real estate is also driven by the influx of tourists, as people often look to purchase homes or rent apartments while visiting the state.

Finally, investing in California CRE can be a great way to diversify your portfolio. As the region continues to experience growth in the tourism industry, there are plenty of opportunities to find high-yield investments that will generate a good return on investment.

5 | Population & Population Growth

California is among the most populous states in the United States, and its population is expanding. Two of the three most populated cities in the United States are located in Southern California. This growth presents an excellent opportunity for California commercial real estate investors. The state’s population is currently 39.24 million, making it the most populous state in the US. This population is expected to grow to 44.1 million by 2030, an 8.8% increase, and the growth is fueled by immigration and a high birth rate.

Population growth drives housing and commercial real estate demand, creating a solid market for California CRE investors. As more people move to California, there is an increasing need for residential and commercial real estate. This creates an excellent opportunity for CRE investors to capitalize on the growing demand.

As demand increases, there is an opportunity to purchase properties at reasonable prices, renovate them, and resell them at higher prices. California commercial real estate Investors can also benefit from rental income as they hold rental properties longer.

California is also home to many large companies that need commercial real estate for office space, retail stores, and other purposes. This provides additional opportunities for California CRE investors to purchase these companies’ properties and benefit from the rental and resale income.

Supplemental Information for California’s CRE Market

Our California CRE specialists at Radius Group have produced a quarterly report highlighting the most recent data from the California South Coast area, including West Ventura County and Southern Barbara County. Please access our most current commercial real estate market reports here to stay up-to-date on the California South Coast region.

Download “5 Reasons to Invest in Southern California Commercial Real Estate”

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