The Sunbelt region of the United States represents one of the most dynamic and rapidly expanding real estate markets in the country, offering compelling opportunities for developers and investors alike. However, mixed opinions on the future of Sunbelt growth have caused many would-be investors to hit pause.
The Sunbelt region has experienced a population boom in recent years due to the lower cost of living and warmer climate these states offer. Between 2010 and 2019, sunbelt states accounted for 62% of national population growth. These states are typically business-friendly, with lower corporate taxes (aside from California) and a growing labor force. Multi-family oversupply and concerns about declining rents have some investors concerned, however. Real estate developers and capital partners should keep an eye on Sunbelt population growth and the opportunities this development trend may have to offer.
What is the Sunbelt Region?
The Sunbelt encompasses the southern tier of the United States, stretching from Florida to California. The region consists of 18 states: Alabama, Arkansas, Arizona, California, Colorado, Florida, Georgia, Kansas, Louisiana, Mississippi, North Carolina, New Mexico, Nevada, Oklahoma, South Carolina, Tennessee, Texas, and Utah.
Are There Still Development Opportunities in Sunbelt Markets?
This region has experienced unprecedented growth due to its favorable climate conditions, lower cost of living compared to coastal markets, business-friendly regulatory environment, strong job market, and economic opportunities. While these states have traditionally attracted seniors, affordable housing opportunities and plenty of job opportunities make the Sunbelt a growing destination for millennials. Mixed-use developments like live-work-play communities have grown in popularity in these regions.
With the massive jump in young professionals relocating to these areas, multifamily housing experienced a favorable growth period to accommodate the demand. However, some investors are predicting a multifamily decline in 2025 and beyond.
In top Sunbelt cities like Austin, rents dropped by more than 5% in 2024. Other Sunbelt cities haven’t fared as poorly, but the supply of multifamily units has yet to be absorbed by the market. While record numbers of multifamily units were built in 2023, there aren’t quite enough renters to fill them, leading to some anticipated CRE losses. Considering the rapid growth of these Southern states, the oversupply issue will likely be resolved in time, but for now, some investors are feeling uneasy.
The Flip Side: Growth Trends and Projections
Despite the oversupply issue, developers in the Sunbelt region could benefit from several compelling advantages. The region offers significantly lower land acquisition costs compared to other major metropolitan areas, while streamlined permitting processes help accelerate project timelines. Pro-growth local governments actively support development initiatives, creating a favorable business environment. Additionally, the strong population inflow continues to drive robust demand across all real estate sectors, while the diverse demographic appeal across age groups ensures sustained market viability for various property types.
Some projections estimate that the Sunbelt’s population growth will continue over the next decade, increasing 7% or more. If the positive growth trend continues, demand for mixed-use developments will continue. Additionally, the influx of new residents will require substantial expansion of healthcare and education infrastructure to serve these growing communities.
The Sunbelt region presents compelling opportunities for real estate developers, supported by strong demographic trends, business-friendly environments, and diverse market demands. Predictions are still mixed, so project owners and capital partners have many variables to account for when deciding whether to join the trend.
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