Key Migration Trends Every Commercial Real Estate Developer Should Know

In March 2020, The New York Times published “The Great Empty,” a photo series of desolate plazas, subway stations, city streets and concert halls. Las Ramblas in Barcelona, Santa Monica Beach in Los Angeles, The Spanish Steps in Rome, Times Square in New York, Place de la Concorde in Paris and the Red Fort Fair in New Delhi all pictured without people. Global stay-at-home orders resounded around the globe, and they vacated some of the most popular and iconic places in the world. 

Everyone stayed home, not everyone stayed put. In 2020, the US Postal Service received 30 million change of address forms from people that, thanks to remote work, traded major metros for smaller, spacious small cities and suburban markets. Not long after, commercial real estate investors and developers followed. Cities in The Sunbelt were the most popular relocation markets, and the migration pattern triggered an investment boom.

Three years later, with the pandemic nearly behind us, people are still on the move. A survey from Architectural Digest found that 55% of Americans in 2023 want to relocate, with most citing affordability as the primary reason. Although people are still moving, migration patterns are looking much different than they did in 2020. 

Here’s a look at where Americans are relocating in 2023. 

The Sunbelt Remains King

The Sunbelt has been the top region for inward migration for more than a decade, but the pandemic accelerated the trend. People fled dense major metros, largely from New York and San Francisco, to smaller cities in warmer climates. Florida, Texas, Tennessee, Arizona, Georgia and both Carolinas were the beneficiaries of the migration pattern. Three years later, The Sunbelt continues to be the top destination for people relocating to a new home. In a survey published in August from moving company PODS, 18 of the 20 top cities for new move-ins were located in The Sunbelt. Seven of the markets in the top 10 on the list were located in either Texas or Florida, which has been consistent with migration trends over the last few years. 

In addition, new Sunbelt markets are growing in popularity. Savannah, Georgia, and Raleigh, North Carolina, were both new additions to the list this year. Myrtle Beach, South Carolina, moved from the sixth place into the number one spot, and Greenville, South Carolina, moved into the top 10 from the 14^th position last year. The rankings show continued preference for Sunbelt cities, which offer better affordability, warmer weather and a good quality of life. 

People Heading to the Midwest

While the Sun Belt continues to attract people, The Midwest has stolen the spotlight this year. Sunbelt growth was high, but fell short of forecasts. The Midwest, however, outperformed expectations this year, according to data from CBRE. Denver, Detroit, Chicago and Pittsburgh have all seen population growth well beyond estimates. Although inward migration trends below the Sunbelt in terms of total numbers, the strong performance shows a growing preference for Midwestern cities. 

As a result, The Midwest region has seen significant multifamily rent growth this year. From 2013 to 2019, rents grew 2.5%, but CBRE expects rents in the next 12 months alone to increase 2.7%. In particular, small Midwest cities, like Omaha, Nebraska, Tulsa, Oklahoma, and Maddison, Wisconsin have the highest rent growth among Midwestern markets. Limited new apartment construction is helping to drive rents forward as well. Most development and investment activity has been concentrated in the Sunbelt and along the two coasts. Now, the lack of development is a tailwind for the region, according to CBRE. With stable rent growth and healthy inward migration, The Midwest region is the best positioned in the country to survive the challenging market fundamentals and economic headwinds. A lack of new apartment construction is only helping. 

Coastal Markets Are Still Popular

The Coastal markets have been a puzzle. Traditionally, as the most sought-after multifamily markets, major cities along the coasts—including New York City, San Francisco and Los Angeles—saw a mass exodus over the last three years. This year, major cities continue to post the highest outbound migration numbers, with Los Angeles now at the top of the list, followed by San Francisco. However, migration out of major metros slowed in 2022, and net migration rates began to improve. This trend is best illustrated by New York City, which has recovered from its pandemic slump, gaining migration momentum after its population shrank in 2020 and 2021. 

Despite lagging population trends, the coastal markets continue to show resilience in multifamily rent growth and occupancy, driven by a severe housing shortage that falls well below demand. Even with an exodus, these markets still remain underhoused. Rent growth across the region clocked in at 1.3% this year, thanks largely to a housing shortage and limited availability to build new supply. In addition, the rent growth gap between popular cities in the Sunbelt and the Coastal markets began to narrow last year. Although the region is still struggling with low affordability, limited supply and outlying factors like remote work, it still benefits from strong demand, favorable supply dynamics and rent growth. 

Multifamily Development Leads CRE

Like all commercial real estate asset classes, new construction starts for multifamily assets are down for the year, and most construction reports at the midyear expect that trend to continue into 2024. However, multifamily development and the absorption of newly delivered units has outperformed expectations. This year, the multifamily supply increased by 152,000 units in the first half of the year, pushing CBRE’s annual estimate for multifamily deliveries to 450,000 units. 

Although demand has held up so far, new deliveries are putting downward pressure on vacancy. Annual net absorption is expected to fall significantly below new deliveries, at about 228,000 units, pushing the national vacancy rate to 5.2%, up 60 basis points for the year. 

Although multifamily developers are facing a challenging market, there are opportunities. New technologies are helping developers navigate new market fundamentals to realize more predictable and targeted outcomes on the project. Predictive analytics are a key tool. The data gives developers a deeper understanding of market trends—like where people are moving and why—so that developers can create the right supply to meet demand, and realize a more successful investment outcome. 

A turbulent market will give most investors pause, but by investing in the right tools, developers can take advantage of development opportunities in markets where demand and rent growth continues to bloom.

Looking to learn more about today’s real estate market? Discover how your firm can identify top project opportunities amid a shifting regulatory landscape in our guide Driving the Next Decade of Development, State-by-State.