San Diego has climbed onto the list of the top target markets in the US for commercial real estate investment this year. According to CBRE's 2018 Americas Investor Intentions Survey, the Southern California market ranked number 11 for investment in the US, up from number 17 last year. The survey analyzes all asset classes and found industrial and multifamily are the most attractive to San Diego investors, with 50% of investors naming industrial as the top asset class and 20% pegging multifamily as the favorite. Overall, 88% of investors plan to increase or maintain spending in the market this year. To find out more, we sat down with CBRE SVP Mark McGovern for an interview.
GlobeSt.com: What are the market fundamentals that have pushed San Diego into the top-targets list?
Mark McGovern: San Diego is a dynamic, thriving market and we are seeing the region advance as a top target for commercial real estate investment because of low vacancies across all product types. Many new investors are coming to San Diego who are attracted to the region's strong market fundamentals, such as limited new construction, strong employment and a well-educated workforce.
GlobeSt.com: This is a substantial jump, from #17 to #11. Has anything specific changed in the last year to make the market more attractive to investors?
McGovern: Employment continues to be strong and has continued to diversify with many new startup companies locating here. San Diego's leading growth industries such as, life sciences, defense, telecommunications, tourism, and healthcare continue to increase their presence in the region. The labor pool is also expanding due to relocations and with many of the students graduating from the local universities choosing to stay in the area.
GlobeSt.com: Were you surprised to see industrial as the favored asset class over multifamily?
McGovern: What has made this asset class so popular for investors in San Diego?
The industrial markets are very healthy with very little new supply being added. Land prices and lack of supply are a challenge for new development. Also, some of the existing buildings, which are located in growth areas are being retooled into creative office and other higher end uses, which diminishes supply. In addition, industrial projects have a much smaller capital requirement on tenant rollover and the product type is also seen as a defensive play when we consider where we may be in the economic cycle.
GlobeSt.com: This news signals that new investors are coming to the market for opportunities. What types of new capital sources are investing in San Diego?
McGovern: San Diego is seeing interest from all capital looking to invest in Southern California. It is recognized from a global capital standpoint and will continue to be of interest from domestic sources as well.
GlobeSt.com: Considering this news, how do you expect San Diego investment sales volumes this year to compare to 2017?
McGovern: Investment volume should outpace the previous year due to solid economic fundamentals. While interest rates have ticked up slightly, they have not played a factor in valuations to date.
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Kelsi Maree Borland
