Southeast Benefits from Migration of Labor and Affordability - CBRE 2018 Southeast U.S. Real Estate Market Outlook Measures Regional Impact

Due to rapid growth, the Southeast is emerging as an economic powerhouse with a diversifying base.

The six states that make up the Southeast region – Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee – would form the sixth-largest country in the world from a GDP standpoint, but a more rapid rate of growth.

With two international gateway markets in Atlanta and Miami ­– together accounting for more than 50% of the region’s international commercial real estate investment and 20% of the region’s population – and strong growth and educated workforces in smaller cities such as Charlotte, Tampa, Raleigh-Durham and Nashville, the Southeast region has been in an expansion mode and continues to grow.

The Southeast boasts an industrial expansion fueled by both import and export activity.  Proximity to the widening Panama Canal is helping to promote e-commerce, and exports are increasing manufacturing activity. Overall industrial vacancy is at a record low for the region. Atlanta and Miami provide strategic locations for e-commerce users, focused on last mile delivery. Atlanta, Orlando and Memphis provide strategic locations for distribution. The automotive and manufacturing industries have seen significant expansions in the Southeast, boosting particularly the economies of Greenville-Spartanburg and Birmingham where manufacturing employs 12% of the workforce. The region benefits from port markets such as Savannah, Miami and Charleston, and industrial health will continue to strengthen with the widening of the Panama Canal.

According to CBRE Research’s 2018 Southeast U.S. Real Estate Market Outlook report, developers are now responding to several years of strong office absorption by delivering new product but are still expected to fall short of anticipated rates of absorption, resulting in further declining vacancies. The region’s mid-sized markets are seeing the most development traction. Nashville, Charlotte and Raleigh- will account for more than half of the region’s development activity over the next two years. Office asking rates continue to rise, with Charlotte and Nashville witnessing increases of 30% or more over the last five years. However, even with rising rents, only Miami shows an asking rate higher than the national average, demonstrating one of the region’s primary advantages - affordability. Talent migration, strong job growth trends, affordability and quality of life should sustain the region’s economic growth and support the office sector.

Retail has followed the trend, with vacancies hovering at historic lows and asking rents at historic highs. Despite the increase in e-commerce, retail development is expected to continue, though it will be at a more conservative pace than pre-recession levels of construction. Some retailers are rethinking development strategies. Grocery and restaurant retail have been largely insulated from e-commerce impacts and are expanding in most markets in the region. Markets with the largest amount of retail development growth expected include Atlanta, Orlando and Tampa.

Strengthening fundamentals borne from growth in both business and leisure travel are boosting hotel markets, but the region received a spike in activity related to Hurricane Irma. Eventually the ample new construction will alter fundamentals, but the outlook remains strong. The most active hotel development markets will be Nashville, Charlotte and Charleston, and the most active tourism markets remain Orlando and Miami.

Multifamily supply has caught up to the population surge in the Southeast, with deliveries outpacing absorption in 2017 for the second consecutive year. Despite the rise in new deliveries, rapid population growth will continue to keep absorption rates high in markets across the Southeast. With 48% of the country’s net migration flocking to the Southeast, there is still a high amount of activity and interest in urban multifamily assets.

CBRE’s 2018 Southeast U.S. Real Estate Market Outlook touches on each city’s strengths in more detail. Click here to visit a website with the full report.