In 2018, core urban markets witnessed retail expansion, especially for experiential retail that targeted younger generations. In 2019, millennials continued to push growth in the urban core, trading square footage for convenience to live near these communities. In 2020, COVID-19 was introduced, disrupting urban markets. Many people reevaluated their housing choices, and high-density residential living became less favorable. In 2021, several people relocated to markets that made more sense for them, and for many, this meant more laissez-faire states with business-friendly regulations. For others, suburban life was attractive as it meant less expensive cities and more space. In this report, Matthews™ analyzes the markets experiencing heightened in-migration, out-migration, and the impact on commercial real estate. By tracking the in-migration data of where younger generations are moving, one can better predict which markets will increase in demand and which ones will be left in the dust.

Migration Trends Pre-COVID-19

Before the pandemic, there was a migration wave towards urbanization. Rapidly improving technology and increasing consolidation of wealth within large cities proliferated the rate of this expansion. Cities in the United States saw increased metroplexes – an extensive metropolitan city often aggregating two or more cities. These metroplexes form when the suburban cities surrounding major metros begin to fill out and become mid-sized cities. This painted the picture that high-demand areas are conglomerated around top U.S. cities. While some relative newcomers attracted talent with more affordable living costs, the corresponding theme was the consolidation of people to cities in the top 50 metros.

Migration Trends Post-COVID-19

The COVID-19 crisis altered housing and retail choices. Affordable suburban life increased in popularity due to more spread-out communities and less dependency on public transportation. Out-migration from dense urban areas to suburban areas was seen early on during the pandemic; especially in large cities such as Los Angeles and New York City, as people were no longer tethered to their work locations. Suburban net move-ins increased the most in Sacramento, followed by St. Louis, while net move-outs increased the most in San Francisco, followed by New York City.

Now, people are moving to entirely new states, with significant emphasis on the Sunbelt region. People are moving away from high-cost, coastal cities to lower-cost, more business-friendly cities along the Sunbelt. Some of the nation’s top companies are also following suit. Large tech companies are moving headquarters and operations to Dallas, Houston, Nashville, and Phoenix. The pace of move-outs from low-cost, post-industrial cities slowed during the pandemic. For example, Pittsburgh, St. Louis, Detroit, and other traditionally slow-growth cities with industrial bases had previously suffered from out-migration, but COVID-19 reversed this trend.

Demographic Breakdown

A majority of the population moving are defined as uptown individuals in their mid-30s with above-average incomes, single, childless, and working remote. For them, these moves are not permanent — they are still renters and not first-time home buyers. On the other hand, we have millennials who are starting families and are looking to purchase homes along the Sunbelt. This aging millennial population is providing a tailwind for suburban development. Suburban apartments and apartments located in secondary and tertiary cities are becoming more attractive, similar to the migration of baby boomers to the suburbs in the 1970s and 1980s. These moves are backed by affordability, no longer being tethered to a work location, and escaping the overhauled urban development.

High-In Migration Markets

According to U-Hail data, these are the top five states to move, based on migration states complied from more than two million customer transactions:

• Tennessee: Even before the pandemic, Tennessee saw growth of self-movers and corporations. In 2021, more and more California headquarters chose to relocate to Tennessee over Texas, the leading market in 2019. According to Urban Land Institute (ULI), Nashville was ranked as the top market in the country, with one of the lowest unemployment rates. The Tennessee cities where most people are moving are Knoxville, the Tri-Cities (Kingsport, Johnson City, and Bristol), Cookeville, Clarksville, Cleveland, Murfreesboro, and Maryville. People are moving to Tennessee because of the no state income tax, low property tax, and low cost of living. Retirees, families, singles, and professionals find that the state meets unique needs and budgets. Nashville also has some of the best hospitals and doctors in the nation and highly rated education, contributing to the state’s attraction to talent from across the country.
• Texas: For years, Texas attracted young adults in their prime working-age. The population in three MSAs in Texas has grown by a combined total of 2.8 million. The Dallas MSA increased by 1.2 million, Houston 1.1 million, and Austin 500K. Since 2010, about 687,000 people have moved to the state from California, representing about 13 percent of new Texas residents, according to U.S. Census Data. Most of the MSAs in Texas are witnessing a faster growth in the suburbs than in the cities. According to economic development officials, the state is seeing more corporate relocations and expansions than it has in a long time. Most recently, Tesla announced it would be moving its headquarters from California to Austin. Top executives see opportunity when they look at Texas and witness its healthy economy, including affordability, great talent at a lower cost, and a cultural boom.
• Florida: Almost 330,000 people moved to Florida in 2020, and this migration is expected to continue through 2025. According to the state’s projections, it will gain an average of 845 residents per day until 2025. Research from Freddie Mac indicates that two MSAs in Florida accounted for a population increase of slightly more than one million – Miami (0.6 million) and Orlando (0.5 million). Favorable weather, lower cost of living, no income tax, and the growing economies with increased job opportunities have attracted a large workforce to the state.
  While many cities in Florida are known as retirement havens, it’s not just the influx of retirees driving population growth. These cities are also adding jobs in the medical, retail, and industrial sectors to support increased consumer spending levels, which has boosted the strong population growth trends. Tourism is also a significant driver in Florida, especially in Daytona and Fort Myers.
• Ohio: With three major metropolitan areas — and a handful of smaller ones – each with distinct socio-economic characteristics, Ohio’s diversity is hard to match. Ohio helped spur the nation’s economic rebound by supplying companies relocating or looking for a second headquarter with one of the friendliest business economies. Coastal overcrowding, coupled with Ohio’s lower overall living costs, makes the state an attractive spot for relocation. According to a survey by Lending Tree, Cincinnati, Cleveland, and Columbus are three of the top 25 real estate markets for millennials. Ohio is a diverse economy fueled by healthcare (Cleveland), finance and insurance (Columbus), and consumer goods (Cincinnati). Companies, especially tech start-ups, are choosing to move to Ohio for different reasons. A corporate-friendly tax structure, low cost of living, and diverse economy are primary factors capturing investor and business interest.
• Arizona: Arizona’s population continues to surge as people move to the state in droves. Many people are swapping the West Coast for Arizona, a years-long trend that has only accelerated during the pandemic. Phoenix welcomes 200 new residents each day as renters search for affordability. The Valley reported fewer job losses than any other metro in the U.S. and continues to add more jobs to the market every day. Arizona has seen significant employment gains in the financing, technology, and manufacturing industries – a key in the market’s resiliency amid the pandemic. Population growth, a diversifying economy, relative affordability, and a business-friendly environment have strengthened the Phoenix value proposition and made the metro a top market for net migration. This has attracted new residents and businesses to the region, helping rank the market as one of the fastest-growing MSAs in the past three years.

According to the National Association of Realtors, 8.93 million people have relocated since the pandemic started. The fastest-growing cities (in absolute terms) are primarily concentrated in the southern and western states – Miami, Austin, Phoenix, Houston, and San Antonio. Most of the growth in metro areas has been taking place in the suburbs compared to the cities. Based on U-Haul data, Texas and Florida have ranked as the top two destinations from 2016 to 2019, and remained at the top of the list in 2020. For example, Texas has been attracting young adults in their prime working-age, and Florida is a retirement destination that attracts more seniors. Over the last decade, the population in absolute numbers increased the most in multiple MSAs within Texas and Florida. According to U-Haul analytics, California came in last by a wide margin, with the highest net loss. Other markets experiencing high out-migration include Illinois, New Jersey, Massachusetts, and Maryland.

Long-Term Outlook for CRE

These migration trends have several implications for investors. For current investors who own in the top in-migration states, this supports that the demographic growth will continue to drive high demand in years to come. Newer investors should search assets within the vicinity of major metros and the states with the highest migration and avoid properties in states or metros prone to population stagnation or decline in the coming years. Investors who have forgone the security of a top metro to chase yield offered in more tertiary markets will see potential profits as tertiary areas continue to grow. However, it’s important to note that smaller secondary or tertiary markets, which can provide higher returns, are often considered more risky. By understanding population growth trends and the drivers behind them, investors gain market confidence in deploying capital in these up-and-coming areas.