Over the past several years, the Los Angeles and Orange County markets have enjoyed a healthy amount of foreign investment. According to industry experts, this influx is expected to continue over the next several years. But what exactly is foreign investment and why is Southern California seeing so much of it?
What is FDI?
Foreign direct investment (FDI) is when an individual or business owns 10% or more of a foreign company. At 10%, the investor does not have a controlling interest but has influence over the company’s management, operations and policies.
What is the benefit of foreign investment?
There is a strong relationship between foreign investment and economic growth. If a market is gaining considerable FDIs, it is presumed that the market is set-up for healthy economic growth. Larger inflows of foreign investments are needed to achieve a sustainable trajectory of economic growth. Foreign investment can generate positive effects on a local economy: job creation, tax money, technology, new knowledge, etc. Attracting foreign investment can be considered a way to boost a local economy.
So, why are Los Angeles and Orange County attracting so much foreign investment? Last year, Los Angeles tied New York for the top U. S. City for foreign real estate investments. Foreign investors are attracted to the Southern California region for a number of reasons, including the healthy commercial real estate fundamentals, a limited supply over the next several years (in comparison to other markets), strong demographics like population density, growth and a rising household income and a rising demand for space. Recently, FDI has focused on the industrial sector in the LA and Orange County Markets, taking advantage of e-commerce trends.
What can we expect in the future?
Industry experts expect FDI to remain strong in these markets over the next three to five years. Investors should remain cautiously optimistic based on recent headlines, stock market volatility, potential new immigration restrictions and rising interest rates.