Where Capital is Flowing in the Southern California Real Estate Market

Higher interest rates, tenant demand shifts and regulatory complexity have created challenges for investors in the Southern California real estate market. Yet, capital continues to flow into targeted subsectors. Looking ahead, the most successful investment strategies balance caution with creativity: deploying capital into resilient subsectors, exploring adaptive reuse and leveraging tax and accounting strategies to maximize after-tax returns.

Capital Is Still Moving but More Selectively

Even in a shifting environment, investors are active. The following subsectors show where dollars are flowing and what trends to watch.

Multifamily: Still the strongest bet

Despite affordability concerns and local rent regulations, multifamily remains the most active sector. Investors favor Class A properties in Orange County and West Los Angeles, where rental demand is driven by strong demographics.

Industrial: From boom to normalization

After years of outsized e-commerce growth, the industrial sector is leveling. Rising vacancy rates in the Inland Empire have slowed speculative development, but capital is targeting infill logistics facilities closer to ports and dense urban markets.

Office: The sector to watch

Office properties remain the most challenged. Distressed sales and loan workouts are increasing in downtown Los Angeles and San Diego. Still, adaptive reuse projects like converting office spaces to residential or mixed-use are drawing private equity and opportunity zone capital.

Retail: Resilience in community hubs

Investors are targeting grocery-anchored neighborhood centers, lifestyle retail in affluent suburbs and mixed-use developments that combine retail, residential and entertainment.

Hospitality: Tourism drives recovery

Southern California’s tourist appeal continues to support hospitality investments. Capital is strongest in boutique and luxury properties, where elevated average daily rates sustain attractive returns.

Trends Shaping Today’s Deals

Several cross-cutting factors are influencing feasibility, structuring and portfolio strategy:

• Tax and incentive tools: Historic tax credits and energy efficiency incentives are helping make adaptive reuse viable, while cost segregation studies accelerate depreciation.
• Portfolio rebalancing: Real estate investment trusts (REITs) are shifting toward open-air retail with durable tenant bases.
• Distressed opportunities: Opportunistic funds are buying debt at discounts, often with value-add potential.
• Sustainability integration: Impact-focused investors are pursuing office-to-multifamily conversions.
• Repositioning strategies: Private equity is acquiring underperforming assets for renovation and rebranding.
• Institutional caution: Global institutions are reentering carefully, often via joint ventures with seasoned operators.

Positioning for the Next Cycle

Southern California continues to attract global capital thanks to its economic diversity, supply constraints and cultural cachet. Investors are placing greater emphasis on tax-efficient structures, transparent reporting and operational agility.

Looking for insight into your investment strategies? Contact us. Our tax, audit and advisory professionals work with institutional investors, REITs, developers and family offices across the region. This perspective gives us a clear view of how capital is being deployed in Southern California and what to watch in the months ahead.

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