Low Taxes, Good Weather and Flight from California Drive Population Growth and CRE Opportunities


Birds are hard wired to seek out warmer climates. It turns out humans are too.

During what is now the second-longest economic expansion in U.S. history, Americans have flocked south. Driven by milder weather, more plentiful jobs and a lower cost of living, these migration trends reflect economic conditions in both the regions being left and the ones welcoming new residents. Within the data reflecting these demographic patterns lie the keys to finding value in the increasingly crowded market for CRE opportunities.

A look at the table below of population growth by state proves out a few primary drivers for the resurgence of Americans’ migrating southward.

9 year population growth by state
Source: US Census Bureau


North Dakota being an outlier thanks to its booming energy economy, the country’s fastest growing regions are concentrated in Southern states with strong employment markets and favorable tax environments, and any state within a day’s drive of California. In fact, 12 of the 13 fastest growing states are either California-adjacent or in the South.

The resurgence in manufacturing, a logistics boom, a lack of snow and affordable housing that are driving population flows are also being reflected in commercial property values. Multifamily cap rates for example, have compressed even as interest rates have risen in the past 18 months. The most notable compression has been in the Southeast, as strong rental growth, rising incomes and investors’ dwindling opportunities for yield are pushing up prices.

Meanwhile, skyrocketing housing costs are pushing people out of the nation’s most populous state in droves. Almost 40% of new residents in Nevada came from California. Oregon and Arizona inflows reflect the same trend, with 31% and 24% of newcomers relocating from the Golden State.

It’s no surprise then, that rent growth in Nevada, Arizona and Oregon has been among the fastest in the nation. Savvy commercial real estate investors got ahead of this trend by finding relative value plays in Reno, Tucson and suburban Portland before headlines about the California exodus showed up in the press.

Trends like these develop over time, as seen below.

9 year population growth by state normalized

Source: US Census Bureau


In the early years of the recovery, people by-and-large stayed put. As growth kicked in and new job opportunities emerged, migration began anew, along with immigration from outside our borders.

Normalization is a valuable tool for comparing data like these, where scale isn’t uniform. 500,000 new residents may be your typical year in California, but would be an influx equal to a whopping 10% of the population in Colorado. Graphing this normalized dataset as we did above is one way to visualize trends, but sometimes even more can be gleaned from a simple data table, as shown below.

9 year population growth by state table

Source: US Census Bureau


The table makes it easier to see that population growth in Nevada lagged behind Washington early in the recovery, but has since overtaken it. The population in Nevada has grown 3.5% in the past three years, compared to 2.7% in Washington.

But population growth is only one input when using this kind of data to uncover commercial real estate investment opportunities.

It’s no surprise that Tennessee is currently the darling of real estate investors, with the highest growth in median household income in the country, as seen below. And notably, despite the flat population growth in Ohio, incomes are rising more quickly there than California, Texas or New York.

cre opportunities

Source: US Census Bureau


And even though Nevada is at the top of the list for population growth, income growth has lagged other fast-growing states. There’s a correlation: Nevada is attractive thanks to its abundance of affordable housing and middle-income jobs.

At a philosophical level, commercial real estate investing is a study in density relative to space. Or put another way, demand and supply. Evaluating these inputs can be attacked in a number of ways, some analytic and some anecdotal.

This kind of number crunching can be invaluable for those looking across wide opportunity sets, but even the most sophisticated data analysis must be corroborated by boots on the ground. After all, there’s an old saying about lies, damn lies and statistics.