How the Quest for Low Population Density Is Benefiting the Sun Belt

Two Cushman & Wakefield experts talk about the region’s hotspots for investment in the context of the latest demographic trends.
(Left to right) Tai Cohen, Robert Stickel. Images courtesy of Cushman & Wakefield

The economic volatility resulting from the ongoing pandemic is accelerating suburban growth, with low-density areas experiencing a large uptick in demand. According to the Urban Land Institute and PwC’s 2021 Emerging Trends in Real Estate report, the highest interest rate for thinly populated areas is concentrated in the Sun Belt markets. But the relatively low cost of living and the high quality of life had been fueling migration to the Sun Belt region well before the pandemic, according to Cushman & Wakefield specialists.

“By far, the suburban markets of high-growth core cities have benefited most from the relocation trends,” Tai Cohen, senior director in Cushman & Wakefield’s Charleston, S.C., office, told Multi-Housing News. Additionally, several secondary markets are seeing not only increased interest from multifamily investors but also “good leasing and collection stats,” according to Robert Stickel, executive vice chair in the brokerage company’s Atlanta office. The two experts reveal which markets in the Sun Belt region are the most sought after, especially for those coming from high tax/high cost of living states in the Northeast and Midwest.


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What is attracting investors to the Sun Belt? 

Cohen: A significant amount of capital is flooding into the Sun Belt region. It’s still going to the primary markets first like Atlanta and Dallas-Fort Worth, and then to secondary markets like Nashville, Tenn., and Raleigh, N.C. International investors are comfortable with cities with major airports and employment drivers. When those investors get priced out of the major markets, they start to look at the high-growth tertiary markets like Greenville, S.C., and Chattanooga, Tenn., which have slightly less competition and high yields.

How have Sun Belt multifamily investors responded to the COVID-19 crisis?

Cohen: There was certainly a pause in transactions between March and May while owners assessed their current portfolios and COVID-19’s impact on resident job loss and bad debt. Once they felt comfortable again, everyone flooded back in, especially into the Sun Belt. Now investors are underwriting the same as they were before COVID-19.The pandemic has pushed many people to relocate from expensive coastal areas to less densely populated and lower-cost markets. What markets in the Sun Belt have most benefited from this trend? 

Cohen: By far, the suburban markets of high-growth core cities have benefited most from the relocation trends. People are still seeking out coastal areas from Wilmington, N.C., to Jacksonville, Fla., but they’re looking for markets with a low cost of living and a high quality of life. Myrtle Beach, Port Royal and Bluffton, S.C., and more are seeing net population growth and attracting more capital.

How has the pandemic impacted the region’s multifamily industry?

Cohen: Multifamily has come out as the winner relative to other asset types because it’s proven to be fairly recession-proof. There are still hurdles with bad debt, but people will always need a place to live. A big difference in multifamily capital markets is that we have two government agencies that lend, Freddie Mac and Fannie Mae.

Right now, debt is extremely cheap, trading around 3 percent, and you can lock in good long-term debt relative to other asset types, which is driving capital toward multifamily. Investors are drawn to the Sun Belt because of the lower cost of living. The warmer weather and open cities are driving people to relocate and driving investor confidence.

What are some of your biggest concerns, nine months into the pandemic?

Stickel: While the pandemic has certainly been challenging for everyone in different ways, it has also created a lot of opportunities, specifically for multifamily investments in the Sun Belt region. Aside from everyone’s health and safety, one concern is the ability for people to conduct business in a relational way—i.e. touring properties, market overview meetings, etc. Some clients have expressed concerns about 1031 exchanges being eliminated as these are meaningful transactions in our industry. What Sun Belt markets do you consider to be more likely to recover first?

Stickel: Atlanta, Charlotte, N.C., and Raleigh-Durham are three markets in the Sun Belt region that will likely recover first. Atlanta is a major hub and starting point for new investments in the Sun Belt region. When people come in from other regions, they often start in Atlanta.

Charlotte has strong ties to banking and financial services, and in-migration was already occurring before the pandemic. Raleigh-Durham has an emphasis on research and life sciences, so we continue to see strong growth, and more population and rent growth also. Aside from these three major markets, there are several secondary markets that are also experiencing good leasing and collection stats, along with increased investment sales activity.

How do you expect the region’s multifamily market to perform next year?

Stickel: Aside from biased optimism, I believe there are several good reasons the region will perform very favorably next year. We anticipate seeing increased capital flow from other regions of the country, while also other sectors within real estate. Transaction volume was down from 2019 to 2020, but, for our group specifically, 2020 was still better than 2017 and 2018. We believe 2021 could be onward and upward with record-setting stats.