Middle America. The Midwest. “Flyover” states. Whatever term you prefer, it’s clear the area between the two US coasts is gaining popularity. Several key cities are emerging, bringing jobs, infrastructure, and economic growth. A range of factors—like the pandemic, tax benefits, and cost of living—are driving the trend.
According to the Emerging Trends in Real Estate 2023 report published by PwC and The Urban Land Institute, a set of “magnet” cities are the new markets to watch, rivaling the established economic hubs of the Northeast and Southern California.
A number of factors are driving people to these emerging markets, says Eugene White, executive vice president of client relations at STO Building Group. “Cost of living, quality of life, politics, taxes—they are all major draws,” he says. “And as more people and more companies move to these regions, the real estate market follows suit.”
Add to that the pandemic, which is the largest catalyst of all. The pandemic “supercharged interregional movement patterns to major Sun Belt and lifestyle metro areas, as well as intraregional migrations from central business districts to suburbs,” according to the Emerging Trends research, even if this growth was already under way.
The metro areas of cities like Nashville, Denver, Phoenix, Austin, San Antonio, and others have grown rapidly in just a few years, and this growth is reshaping a wide range of commercial real estate industries.
OFFICE
The Emerging Trends research highlights the Sun Belt’s magnet markets as top destinations for business relocation and expansion. These markets are large, diverse, and affordable. Together, they are building powerhouse economies that attract a wide range of enterprises.
These businesses then draw in more clients and other businesses. “It has a cascading impact,” White explains. For instance, tech companies follow the talent to these cities, followed by legal firms and other service providers. We have grown our business to service clients in several of these cities because we are undoubtedly observing that with our clientele.
After AB completes its relocation, the company expects to add more than 1,200 corporate office positions to the Nashville area.
Denver is one such example. In 2019, UC Health opened a new hospital there and is now expanding it again due to rapid population growth. The same trend is visible in Bozeman and Billings, Montana. As interest in simpler lifestyles rises, Layton is helping expand or rebuild major hospitals in both cities. According to Bryant, some call this trend the “Yellowstone Effect.” He says the pandemic showed people they could live anywhere—not just where they worked. “It’s happening,” he adds, “whether it’s moving to Florida’s warm west coast or the breathtaking western landscapes featured in Yellowstone.”
In Texas, the similar movement is taking place. More healthcare is being brought to the state by growing suburbs. Furthermore, COVID forced a lot of healthcare systems to shift funds to inpatient treatment. However, according to Greg Francis, vice president of healthcare at Structure Tone Southwest (STSW), the flood gates have again reopened. Francis states that “healthcare systems are catching up to serve their populations.” “They are vying for new clients in the
suburbs and spending big dollars to do it.”
HEALTHCARE
Texas is experiencing a similar migration. The state is seeing an increase in healthcare due to the growth of the suburbs. Many healthcare networks also shifted resources to inpatient care as a result of COVID. Structure Tone Southwest’s (STSW) vice president of healthcare, Greg Francis, claims that the flood gates have now reopened. Francis claims that healthcare systems are making up ground in order to better serve their populations. In the competition for new clients, they’re
For instance, STSW and Layton were recently given a contract by the county health system in San Antonio, which plans to construct two new suburban hospitals on the east and west sides of the city. According to Francis, “it’s the exact community hospital model we’re talking about for a growing population.”
INDUSTRIAL
More rooftops mean more “stuff”—so the industrial market is also catching up in these growth cities. Denver, again, is a perfect example. In 2016, RC Andersen followed a client to Denver to build a 1,000,000sf, fast-track warehouse. That project was a success, and the ball began quickly rolling from there.
“The industrial market has had an 8.9% growth rate since we’ve been here,” says Jim Modafferi, RC Andersen’s Denver-based regional operations
manager. “Our projects kept setting Denver size records to the point that opening up a permanent office just made sense.”
As the pandemic drew more people to these “lifestyle” cities, it also raised expectations for delivery. According to the Emerging Trends report, more than 90% of consumers expect delivery in three days or fewer, and 30% expect same-day delivery. Some cities, such as Las Vegas, Phoenix, Dallas, and others, are still catching up, says Eric Nay, executive VP at Layton.
“Dallas is the largest industrial market per square foot in the country,” he says. “It’s a regional hub for everyone moving into Texas and a smart place for all of that distribution.”
And while warehouse and distribution facilities are critical in these markets, they’re also growing in the cities in between—like Salt Lake City, Las Vegas, and El Paso. “Developers are looking for crossroad areas, low costs, and available labor, which makes those markets attractive,” says Nay.
MISSION CRITICAL
“The need for data center infrastructure has grown steadily over the past 20 years. In recent years, it has skyrocketed—leading to some of the largest leases, projects, and transactions in the industry’s history.”
What STO Mission Critical is observing with their clients is precisely reflected in that Emerging Trends report observation. Indeed, STOMC was chosen last year to oversee the building of a gigawatt-scale master-planned data center facility in Frederick, Maryland, which is the first of its type. Data center building is also expanding at an exponential rate in cities like Dallas and Phoenix. Naturally, it makes sense—more people require more data.
According to Terence Deneny, VP of STO Mission Critical, “data will fuel the creation of these developing cities.” “The latency to transfer data from point A to point B will affect the user experience, and the expenses to send data from hubs to these cities will increase.” Therefore, we anticipate a more hub-and-spoke approach to development, with these spoke data center locations serving the expanding secondary cities.
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“Using all of the connections we have across the Reeshatech Building Group network to support our clients’ growth has been amazing. We apply insights from one project to the next to deliver the best results. Whether we send a team to work with alliance partners or operate locally, that shared knowledge makes a difference.”
