California retail capital is heading outside of the state in search of single-tenant opportunities. That isn't to say this capital doesn't want to be in California. The strong dynamics in the California markets has driven prices to all-time highs, making it difficult to invest. The chief issue, however, is the limited opportunities for investment: no one wants to sell their product. The trend is driving investors, especially investors completing 1031 exchanges, out of California into markets like Texas, Washington and Florida.

“Inventories are down, and there isn't a lot of product here,” Eric Carlton, EVP of retail services at Colliers International, tells GlobeSt.com. “California money is heading to other markets, even markets on the other side of the country. In L.A. and Orange County, there hasn't been a lot of turnover of product. This is really the place where people want to be, but there is very limited product. It has been a seller-friendly market. This is the top of the market.”

Carlton recently completed a transaction exemplary of this trend, brokering a deal for a newly built Discount Tire in Alpharetta, Georgia. The California 1031-exchange buyer purchased the single-tenant asset, which is still under construction, at a record at a record cap rate of 4.4%, the lowest cap rate for a Discount Tire in the US. These transactions—trades from California product into other US markets—are becoming more common. “We do single-tenant retail all across the country, and we have exclusively been doing this specialized niche since 2008,” says Carlton. For the last three to four years, pricing has continued to go through the roof and cap rates have come down. Now, 75% of our transactions are outside of the state of California.”