The retail real estate scene in the United States is undergoing a change amidst population growth. The Sun Belt region of the U.S. has seen strong population growth as people migrate from the Rust Belt to the Sun Belt.
According to the U.S. Census Bureau, Texas, Florida, North Carolina, Georgia and South Carolina are experiencing the largest population gains from July 2022 to July 2023. This movement has influenced the demand and availability of retail real estate in these regions.
Contraction and expansion of inventory is inversely related to population. Markets with the greatest contraction in inventory have seen strong population growth, while those with greatest expansions have seen loss in population.
In the realm of retail, the adage “location, location, location” holds true. Demand for retail space is highest in well-trafficked areas boasting strong demographics. Unsurprisingly, areas with soaring populations exhibit lower vacancy rates. The flourishing population in these regions contributes to increased foot traffic and sustained consumer interest.
CoStar data sheds light on a correlation between rent growth and population increase. Over the past five years, retail markets experiencing the most substantial rent growth were those riding the wave of significant population surges since 2019. It underscores the pivotal role population dynamics play in shaping the retail real estate landscape.
However, the Sun Belt’s rise is not without its challenges. Despite soaring demand for retail space, construction has lagged behind population growth. CoStar reports a 13% deficit in retail space availability across major Sun Belt markets compared with the national average. This construction lag is resulting in a tightening of availability and, consequently, an uptick in rents.
According to CoStar, cities such as Charlotte, Nashville and Tampa have historically low levels of space availability. As of December 2023, these markets have less than 3.5% of retail inventory available. The overwhelming demand and limited supply in these regions are pushing rents to unprecedented levels.
Fueled by population growth, the increase demand for retail space has overwhelmed new supply. If this trend continues, the Sun Belt markets will be leaders in the nation’s retail rent performance.
Ben Haverty, leave of Colliers Furniture Industry Service Team, has more than 30 years of experience as an executive and entrepreneur in the furniture industry, operating retail stores, home delivery warehouses and regional distribution facilities.
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