The ongoing allure of LA real estate
Comfortably sitting in the top 10 of the Schroders Top 30 Global Cities Index, property in Los Angeles boasts a number of positives. Here we outline some of the reasons why we think real estate investors should sit up and take notice
20 December 2016
City: Los Angeles, California
Index ranking: 6
Share of national economy: 5.81
- A diversified economy
- Largest port in the US
- Natural terrain and government regulation make new construction challenging
- Poor public transit
- High housing costs
What makes Los Angeles a global city
We are all relatively positive on the prospects for Los Angeles across the major property types – residential, office, retail and industrial. One of the key strength of LA’s economy is that it is well diversified across multiple industries including financial services, media, trade and technology.
The City of Angels has long been famous for Hollywood and the hub of entertainment jobs it has created. But it is other sectors that should catch the eye of a property investor. The technology sector, in particular, has grown substantially over the past few years, and this has not only boosted demand for office space but also for residential property, much of it due to increased hiring of millennials.
The role of tech
Technology’s rise has been demonstrated by Netflix’s recent office expansions with the real estate company Hudson Pacific over the past two years as well as Google’s development of Playa Vista, a new urban community on the west side of the city.
The role of infrastructure
Infrastructure has a huge role in making a global city, and LA boasts two of the biggest ports in the world. This helps drive the need for distribution warehouses.
Building industrial properties in the urban core of the city is tricky due to an onerous permit process, meaning supply is constrained. This increases the value of already established distribution real estate properties and the companies that own them such as Rexford Industrial and Terreno.
The role of tourism
LA is, of course, an attractive tourist destination. While the strength of the US dollar has been a near-term headwind, long-run positives such as the rise of the Asian traveller have placed West Coast cities like LA in a good position for the future. We are particularly comforted by iconic, irreplaceable retail centres such as Federal Realty’s Third Street Promenade in Santa Monica and Westfield’s Century City, near to Beverly Hills.
In the near term, the fundamentals of LA property remain strong while other parts of the US have seen a slow down of late. The reason? LA was one of the last markets to recover from the last recession.
As a result of a slower pickup in demand as well as more difficult development regulations relative to the rest of the US, new construction has been somewhat muted thus far, creating a favorable balance of supply and demand dynamic across most type of property.
1. U.S. Bureau of Economic Analysis, July 2016
The sectors, regions and companies mentioned in this article are for illustrative purposes and not a recommendation to buy or sell.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.