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

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.