Population and CRE Effects…

Posted on May 21, 2015

Population growth is a key driver of demand for commercial and business real estate. Although job growth is routinely cited as the most important economic driver of demand, there would be no job growth without population growth. It’s a chicken-and-egg relationship: Population growth provides the raw material for building a skilled and educated workforce, which attracts employers and jobs, which attracts new residents to the region. It can be a virtuous cycle.

The Census Bureau recently released its 2014 population estimates for the nation’s 381 metropolitan areas, defined as having an urbanized area of 50,000 or more inhabitants. The adjacent graph illustrates the one-year percentage change for the 53 areas with populations greater than one million. This is one more than last year, with Tucson, Arizona, crossing the million-person threshold. A few trends stand out:

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  • The U.S. population grew by 0.7% from July 2013 to July 2014, while the population living in metropolitan areas grew by 0.9%.
  • Austin remains the standout, with the population expanding by 3.0% over that 12-month period, more than three times the U.S. rate, followed by Houston, Raleigh, Orlando and San Antonio.
  • The 17 fastest growing metros are in the South and West.
  • Three of the 10 fastest-growing metros were hit hard by the recession and housing bust, but are now making a comeback: number four, Orlando; number seven, Las Vegas; and number nine, Phoenix. However, all three continue to trail their pre-recession growth rates, particularly Las Vegas and Phoenix, which added residents last year at about half the annual pace from 2000 to 2007.
  • Although the South and West are growing rapidly, the growth doesn’t extend to all metro areas. In the South, Memphis ranked 46th out of the 53 largest areas. In the West, number 35, Tucson, was the slowest-growing market.

Population growth is one factor in a strong market for corporate occupiers and property investors, but it’s not the only factor. Analysts need to consider other demographic factors, such as education and household income, as well as the structure of the local economy and property market dynamics. Some of the strongest commercial real estate markets are in areas with middling population growth, such as New York, Boston and Los Angeles. Even metros with flat population growth, such as Pittsburgh and Cleveland, are experiencing an influx of skilled workers and higher-paying jobs that are bolstering their local economies, while lower-paying jobs are going elsewhere.