At StackSource, we’re seeing clear favoritism for projects in “Sunbelt” or “Smile” states. These are the current hot markets where many commercial real estate investors want to place capital. This has been a growing trend over the past several years, which only looks to continue.

In this post we’ll explore five reasons why these markets are hot.  

1. Population increases
2. More jobs
3. Lower cost of living
4. Higher quality of life
5. Better weather 

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#1: Population Increases

The first reason why this region is highly targeted is due to the fact that the Sun Belt is home to about 50% of the nation’s population (326 million as of 2019). There are projections for it to increase to around 55% by 2030. 

The graph below by Moody’s Analytics represents the cumulative domestic migration by select states from 2008 to 2018. States like South Carolina, North Carolina, Florida, Georgia, Arizona, and Texas have seen a population increase of at least 10% between 2010 to 2018. 

#2: More Jobs

A CRE veteran once shared this nugget of wisdom with me, “Follow jobs. Where the jobs are, people go.”

The increasing number of companies moving their headquarters and operations to the Sun Belt region is a direct reflection of the region’s business-friendly environment with less strict regulations and lower taxes. There is also a clear difference in employment growth between the Sun Belt and non-Sun Belt states. Within the last decade, the Sun Belt has seen a 20% increase in employment compared with a 12% increase outside the Sun Belt according to Clarion. 

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#3: Lower Cost of Living 

Even though home prices have increased over recent years on a national scale, homes are typically more affordable in the Sunbelt region versus more expensive cities in the North. There are stark differences between rents and housing prices. As of July 2020, New York’s median home price was $635,000, compared to Charlotte which has a median price of $324,000. Other comparisons include Seattle, which has a median home price of $702,000 compared to Austin which has a median price of $456,000. 

Lower taxes are not only enticing to companies looking to move operations, but also to individuals who are seeking a lower cost of living. The Sun Belt typically offers relatively low or no property and individual taxes. California, however, is the most apparent outlier in the region.

Many states in the region have very low property taxes. The top ten states with the highest property taxes are in the North, except for Texas. However, Texas does not have any state income tax, allowing the people living in the state to have higher affordability. 

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#4: Higher Quality of Life

Currently, Millennials make up the highest percentage of the population in major cities like Austin, Charleston, San Francisco, San Diego, and Los Angeles. As Millennials grow to become three-quarters of the workforce by the end of the decade, the Sun Belt region is expected to continue to draw in a younger workforce. 

Prior to the rise of the Sun Belt region, it was common for the majority of college graduates to seek opportunities in cities such as New York, Boston, or San Francisco.  Graduates are giving up these expensive cities in exchange for mid-sized cities in the Sun Belt. The continued migration of the workforce has created dispersed opportunities like tech, entertainment, hospitality, financial services, and many more. 

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#5: Better Weather 

As mentioned, it is no surprise that the weather found in the Sun Belt is one of the most attractive reasons to live there. This region has more comfortable weather with warmer winters and far more sun throughout the year, compared to the long and cold winters in northern states. 

Weather is a huge determining factor for both retirees and younger individuals. Many are even considering the long-term concerns of global warming, and how some northern regions are beginning to become increasingly affected by it. 

People are moving to the Sun Belt region because it has more jobs, a lower cost of living, a higher quality of life, and overall better weather. CRE investors are capitalizing on these population shifts by strategically investing in these areas.

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