In 2020 commercial real estate transaction volume dropped 64% year over year according to Real Capital Analytics. As we move further into 2021, real estate investors have seemingly set their sights on the Sunbelt States. The Sunbelt States check two important boxes for commercial property investors:
Job growth
In Milken Institute’s Best-Performing Cities 2020 Where America’s Job’s Are Created and Sustained, Sunbelt Cities make up 15 of the top 25 cities for job growth in 2020.
Increased population
The Sunbelt region runs from the Southeast to the Southwest. It is made up of eighteen states and according to Moody’s Analytics, the population growth over the last ten years in the Sunbelt region accounts for 75% of the population growth in the country. Clarion Partners predicts that 55% of the US population will be in the Sunbelt region by 2030.
The US postal service verified over 300,000 have fled the five boroughs in New York with the change of address requests outside the city. Cities will face huge deficits with these wage earners leaving as 75% of these people earn over $100k per year. These wage earners pay 80% of all taxes collected by these cities.
Job growth and Increased population are two huge factors when looking at investing in real estate. Investors are chasing higher yields or capitalization rates in growing markets like Charlotte, Raleigh, Greenville, Boise, Phoenix, Jacksonville, Dallas, etc. We are seeing annual returns in these secondary cities return 1%-4% increase over the cities with negative growth rates.
In addition to job growth and increased population, politics is also playing a part in the Sunbelt States commercial real estate investment upswing. The Biden administration is considering eliminating the 1031 exchange concept from commercial real estate investment. The 1031 exchange tax laws allow an investor to put off gains and roll capital gains into another investment if done in a 120 day period after their sale. This threat of paying higher taxes has in turn created a flurry of property buying activity among real estate investors in cities like Atlanta, Phoenix, Dallas, and Houston.
We expect the popularity of the Sunbelt will continue to flourish. As an Atlanta-based commercial real estate firm we are excited to see the job growth, population growth, and the flurry of commercial real estate buying.
