Some California investors in commercial real estate have concerns about falling values. Over two decades, returns on investments in the sector skyrocketed. In 2016, however, the returns fell below the 10.1 percent average for the first time since the financial crisis of 2008. Some forecasts envision that returns in 2018 and 2019 will hover in the range of 6 percent.
Los Angeles is a fast-growing commercial real estate market. While traditionally cities such as New York, London and Tokyo have topped the global CRE market, they are now being challenged by several other cities, and Los Angeles appears to be at the top of this new wave. With transactions totaling $22.9 billion in 2017, Los Angeles surpassed New York City in world rankings and was second only to London.
The results of a biannual survey of commercial real estate executives in California have started the year on an optimistic note. Produced by a partnership of the UCLA Anderson Forecast and Allen Matkins, the Winter/Spring 2018 survey findings showed an uptick in optimism among investors and developers who six months earlier had believed that the state's CRE markets were peaking.
eCommerce has had a significant impact on the retail sector in recent years. However, companies in California and around the country will need to take a look at other factors to help them meet customer needs today and into the future. One factor that must be taken into account is the fact that roughly 1 million people per week are moving into cities. This trend is happening throughout the world, and it may result in an increase in spending.
California residents who are looking to develop their portfolio and enter a new, lucrative arena of business may be considering investing in property. While residential real estate can be the first form of property investment that comes to mind, whether in the form of buying and re-selling homes or through becoming a residential landlord, commercial properties can be an excellent investment for many. Commercial buildings can bring a different kind of business that many investors prefer for its profitability and stability.
Office ents in Los Angeles increased 9.3 percent in the final quarter of 2017 compared to the same time period in 2016. That translated to an increase of $3.29 per square foot despite the fact that vacancies were also on the rise in that market. Vacancy rates were at 15.1 percent in 2017 compared to 14 percent in 2016. This was partially attributed to new construction creating more space for lease.
Investing in commercial real estate means being responsible for keeping those properties in good condition. It may also mean that California residents have to be aware of legal issues related to owning and leasing property. Typically, investors can choose to do the work themselves or outsource it to a third-party service provider. Those who are new to real estate investing should consider several factors related to a property before investing in it.
Developers in California may dread the arduous process that can be involved in securing capital funding for their projects. Traditionally, commercial real estate funding involves a months-long process before the prospective borrowers receive their decisions. If they are denied, they have to restart the process all over again with new lenders.
Foreign investors have been bidding up the price of commercial real estate, especially in the large gateway cities of California. Los Angeles and San Francisco have been the scene of large influxes of foreign money for industrial properties, accounting for a large portion of the $61 billion spent by foreign real estate investors in the United States since 2010. The competition created by deep foreign pockets and large institutional investors has often priced high-net-worth individuals and families out of these markets. However, opportunities still exist for smaller players in the secondary and tertiary markets away from the high-profile urban centers.
Business owners in California and around the country sometimes find themselves committed to commercial lease agreements that no longer fit their needs. Entrepreneurs may wish to break their leases because their businesses have grown and need more space, or they may be seeking an exit due to an unexpected downturn and a pressing need to reduce costs. Breaking a commercial lease can be straightforward or difficult based on the landlord involved, the market conditions and the state of the economy.