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Over the last decade, the Sunbelt emerged as a major site of growth in the commercial real estate market. Due to robust population growth, CRE industry experts are expecting the region, which stretches across eighteen states in the southeast and west including Florida, Texas, Arizona, and George, to continue to boom in 2024 and beyond. Even as coastal cities stagnate or experience population decline, Sunbelt markets are expected to continue to attract residents with warm climates, job opportunities, and relatively low cost of living.
The Urban Land Institute’s “Emerging Trends in Real Estate 2024” report found the majority of cities on its “markets to watch” list with the best real estate prospects for the coming year were located in sunbelt markets. Industry experts are projecting markets in Sunbelt states will continue to lead investment and construction due to these ongoing migration trends and the states’ vibrant business economies. However, your firm should also be aware of the potential risks associated with the region, including potential zoning or regulatory hurdles and the unpredictable impact of climate-related disasters.
Let’s take a closer look at the outlook for the Sunbelt market in 2024, and the challenges and opportunities for your development team:
Understanding Trends in the Sunbelt Markets
A 2021 Brookings Report based on 2020 U.S. census data found the Sunbelt’s share of the national population had grown to 62%. From 2010 to 2019, Sunbelt states led the nation in population growth, with South Carolina, Texas, Florida, North Carolina, Georgia, and Arizona seeing a minimum of 10% population increase. Population growth of this scope and scale is continuing to attract real estate investors to the region; the Wall Street Journal reported of the record $335.3 billion invested in real estate in 2021, nearly a fourth was designated for the metro markets of Dallas, Atlanta, Phoenix, and Houston.
Looking toward 2024, Sunbelt economies will continue to attract real estate firms and investors due to the lower regulatory hurdles and taxes along with consistent demand from the growing labor force. ULI expects top cities to watch in the Sunbelt to include Nashville, Dallas/Fort Worth, Atlanta, and Austin, saying these are among the best markets for investment in 2024. Even more opportunities can be expected to open up for teams pursuing high-density, multifamily development as states shift zoning policy to boost housing production amid shortages.
In the next ten years, the Sunbelt market is expected to grow by another 19 million residents, while the majority of non-Sunbelt states are expected to grow by only 3 million. The area is drawing residents from all demographics, with people looking to take advantage of the growing business environment, lower cost of living, and relatively mild climate. Investors are predicting the state’s population of workers will continue to grow from both migration and new births. As a result, high-density, mixed-use development projects that combine work, play, and living space, will continue to be a low-risk investment in the region.
Economic Factors Driving Sunbelt Growth: a Closer Look
The growing job market in the Sunbelt is largely due to the business-friendly regulatory environment in the region since these states have lower taxes and fewer regulatory restrictions. Many companies are moving headquarters and operations to the region to take advantage of the regulatory environment and gain access to a growing workforce. In the last decade, Texas, Florida, and California housed the most Fortune 500 companies outside of New York, Illinois, and Ohio. The rapid business expansion has resulted in faster job, GDP, and wage growth in Sunbelt metro areas compared to the rest of the country.
Healthy job markets are good news for development teams investing in residential, office, and retail projects in the Sunbelt states. Your firm can find a variety of opportunities across these asset classes, starting with Class A office space. The Sunbelt has an opportunity for Class A office assets near transit hubs, campuses, and commercial districts in the submarkets of Atlanta, Dallas, Denver, and Tampa.
Since the majority of new development in the region trends toward low-density suburbs and exurbs, metropolitan markets may also include opportunities for high-density residential mixed-use development projects. In addition, more than half of all purpose-built senior housing is being constructed in the Sunbelt states as the country’s aging population seeks warmer climates. Retail assets are also most successful in grocery-anchored lifestyle centers with appropriate population density. Proximity to the market’s growing job and housing markets will prove crucial for retail success.
Potential Challenges in the Sunbelt Markets
The Sunbelt markets are largely perceived as a safe place to invest for CRE professionals due to the region’s population and economic growth. However, development in the region is not without its risks or challenges. Zoning restrictions, market saturation, and climate-change-related natural disasters can all pose challenges for your projects. Before pursuing a complex development project in the Sunbelt, your team should conduct the proper market research and due diligence to assess risk.
The biggest risk your firm faces in the multifamily market in the Sunbelt is potential oversupply in non-gateway metro markets such as Austin, Phoenix, and Raleigh-Durham. If the population growth in these markets does not continue in a post-pandemic environment at a rate to match the boom in construction, the oversupply could endanger valuations. In addition, the impact of climate change-related disasters on Sunbelt migration trends is not yet clear. High temperatures due to climate change may impact the quality of life in some regions of the Sunbelt and curtail population growth, in particular during the summer months.
Development in some areas of the Sunbelt may also be curtailed by water shortages. For example, a recent report projected severe groundwater shortages in Arizona could lead water regulators to curtail permits for new development in the Phoenix area. Regulators have indicated that no new development projects will be approved around Phoenix unless water can be provided elsewhere. Similarly, regulators are expected to push back against the development of single-family homes in the Reno area of Nevada as the Truckee River cannot supply the necessary water to meet demand.
Economists also worry workers moving to the Sunbelt region for a better, more affordable lifestyle could conversely drive up the cost of living, which would stifle growth. The influx of workers comes with other concerns as well. Traffic congestion is a growing issue in Sunbelt communities. The population boom in Miami during the pandemic resulted in a nearly 30% increase in time spent in traffic jams in 2020 compared to 2019. Las Vegas drivers found time spent in traffic increased up to 156% following the pandemic-era influx of residents. The lack of public transportation networks in some of these cities could stifle economic growth, as congestion can be a deterrent for companies looking to set up in the cities. Keeping an eye on environmental and lifestyle factors is a best practice, allowing your team to assess demand in the region’s markets more accurately.
How Technology Helps Capitalize on Sunbelt Opportunities
Modern real estate development software is helping competitive firms capitalize on opportunities in the Sunbelt and beyond. Northspyre’s purpose-built, single software solution can help you measure the success of your portfolio reliably and consistently without complicated spreadsheets or version control issues. The ability to demonstrate your past success to investors will give you a competitive advantage as money continues to flow to the Sunbelt markets.
Northspyre can also help you manage risk by keeping your team informed of all aspects of your complex development projects, including opportunities to eliminate overspending. When pursuing a complex development project in a growing market, you can ensure your project isn’t. The platform notifies you about potential exposures, spend forecasting, and remaining contingencies, to ensure that your projects come in on time and on budget.
Learn More About Northspyre
Northspyre is the only single software real estate command center to manage your entire real estate portfolio and keep your team organized, on track, and on budget. The platform automates and standardizes important reports and dashboards to keep you informed of project performance from pre-development to stabilization. Our cloud-based platform empowers you to manage your entire real estate portfolio and keep your teams organized, on track, and on budget.
Download our white paper Software Misalignment in Real Estate Development: the Right Tech for the Job to learn more about how investing in the right technologies can help your firm gain a competitive edge.
Tag(s): Real Estate Technology
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