Los Angeles Ties for Top US City for Foreign Investment
It's a First for the City, Tied With New York
For the first time ever, Los Angeles has tied New York as the top city for foreign investment in the United States, according to a new survey published this week by the Association of Foreign Investors in Real Estate (AFIRE).
It is a notable jump up from last year when Los Angeles came in second behind New York. The Big Apple has held a substantial lead over Los Angeles for the last seven years, but in 2016, following an influx of investment led by Chinese companies, it popped up into second place. This year, it inched up even further to share the No. 1 slot.
Jim Fetgatter, chief executive of AFIRE, said many investors are bullish on Los Angeles’ industrial portfolio.
"With the growth of online shopping, foreign investors continue to rank industrial-logistics properties as their number one investment opportunity," he said in a statement. "The cargo coming into the Port of Los Angeles represents 43 percent of all cargo coming into the United States. Respondents also say online shopping is likely to have the biggest effect on real estate over the next five years. With these as benchmarks, it’s easy to see why investors would be bullish on Los Angeles."
Los Angeles executives say they believe it’s more than just that, however.
"L.A. recently has recently gotten on the global stage," said Stephen Cheung, president at the World Trade Center Los Angeles, which is charged with attracting foreign investment to the county. "Traditionally Hollywood has dominated the conversation, but companies such as Snap and Space X are drawing attention from the traditional Hollywood and entertainment industries. A lot of investors are looking at (L.A.) differently. Once one investor comes in, others come in."
Indeed, investors from Canada, China, Germany, Japan, Qatar and others have followed after each other to bet on big real estate in Los Angeles in recent years. The city’s balanced and diverse economy and population are a significant reason for the city’s strength and attractiveness to investors.
"We have entertainment, biotechnology, aerospace, defense, financial services and healthcare, and now technology like you see in Silicon Beach," Chris Cooper, principal and managing director at Avison Young in Los Angeles, said. "So when we went through the recession, while it hurt, we didn’t fall flat on our face like other markets did... Foreign investors see that as a real plus. It’s relatively safe and predictable and returns will come as they have been underwritten."
It helps that Los Angeles prices haven’t peaked the way other competitive markets like San Francisco’s have. Kevin Shannon, West Coast president at Newmark Knight Frank Capital Markets, noted that it’s another reason investors see L.A. as the safest late-cycle U.S. market to invest in.
"It was later to the recovery party than other gateway markets so its rents and office prices haven't run up as much as some other markets especially in the Los Angeles CBD," he said. "Many Los Angeles office markets like Downtown and Glendale still offer a significant discount to prior peak pricing and replacement cost even late cycle."
Foreign investors also see ample opportunity in Los Angeles for upside compared with other U.S. cities such as Washington, D.C., where prices can be up to 50 percent more on a square foot basis compared to those here. It’s leading to an incredible development boom in certain areas of the city.
"This trend is most visible in downtown L.A. where foreign investment is reshaping the city skyline building multiple high rise projects, but capital is not limited to the city alone as strong growth continues to flourish throughout Los Angeles and Orange counties," said Rob McRitchie, JLL senior vice president, referencing projects such as Chinese developer Greenland's $1 billion Metropolis hotel and condo development and Korean Air's Wilshire Grand high-rise.
Globally, Los Angeles ranked fourth for top investment city, holding steady in its position from last year. London was bumped up to the top spot as first choice for global investment. New York earned the second slot followed by Berlin.
More than half of the survey respondents said the U.S. remained the most stable country for real estate investment in the world. They also agreed it offered the best opportunity for capital appreciation in the world. So it’s not surprising that by a large margin respondents named the U.S. the top country for planned real estate investment this coming calendar year.
AFIRE members include some of the largest international institutional real estate investors in the world. They have an estimated $2 trillion in real estate assets under management globally. This was the 26th annual survey and it was conducted in the fourth quarter of last year by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.