San Diego has become a more favorable place for real estate investing among big money players across North and South America, said a study released Friday.
The annual report from commercial real estate firm CBRE is a survey of multimillion-dollar investment groups — from insurance companies to pension funds — that asks where they are investing and why.
How San Diego is ranked: America's Finest City was ranked No. 11 among most desirable places to invest in real estate, including industrial, multifamily, office and retail. The city moved up from No. 17 last year. Louay Alsadek, an executive vice president at CBRE, said investors are drawn to the San Diego region because of low vacancy rates and a diversified economy. Also, he said a lack of development sites and new office and industrial properties means high rent returns.
Why it matters: Real estate investing means pumping money into a local economy from construction of a new building or, what is more likely from investors surveyed, buying an old structure and fixing it up, said Chris Thornberg, economist and founding partner of Beacon Economics. "Buying an existing structure and upgrading the structure," he said, "helps the community because it is putting resources into improving local infrastructure." However, he said an investment group that buys a building and doesn't change much would not affect the economy.
Nearly half of surveyed investors, 45 percent, said they plan to increase purchases this year compared to 2017.
How we compare: Los Angeles is considered the best place for investing for the second year in a row. It was followed by Dallas/Fort Worth, New York City, Seattle and San Francisco. San Diego was tied for 11th with Phoenix, Minneapolis/St. Paul and Philadelphia. While cities in the United States dominated the list, some international cities were also considered good places to invest — Toronto (No. 10), São Paulo and Montreal (No. 12), Bogota and Mexico City (No.13).
What investors are looking for: The most important factor in real estate investing income is job growth in industries that use offices, wrote CBRE head of research Spencer Levy in the report. He wrote that job growth can offset potential interest rate rises in the coming year. Other things investors said they valued were an attractive risk-return profile (less risk in the market), established markets where there is a lot of financial activity and the opportunity to buy undervalued assets.
Industrial was the preferred property type, cited by 50 percent of respondents as the best investment this year. It was followed by multifamily (20 percent), office (14 percent), retail (10 percent), other (4 percent) and hotels (2 percent).
The China factor: Tighter Chinese government control of overseas investments could mean less competition for assets. The majority of investors, 63 percent, believe that less Chinese money will be spent outside of the Asian nation in 2018.
Risks in the future: Investors may fear inflation caused by rising wages, Levy wrote. Raises may be good for the economy as a whole but Federal Reserve hawks may see it as a reason to tighten monetary policy, which could mean higher interest rates or other policies. Investors said a "global economic shock" was the biggest threat to occupier demand in 2018. The survey didn't get into details about what the shock could be but an example would be the Great Recession, which largely began in the United States and spread across the globe.