A lot of markets got crushed during the Global Financial Crisis. Many of them had a run-up in both housing deliveries and subprime loans in the mid-2000s. When the economy crashed, they got hit exceptionally hard.
But now, in the COVID crisis, these markets like Atlanta, Phoenix and a number of Florida locales are the hottest metros in the country. As their housing markets are taking off, industrial demand is following.
“A lot of these growth markets were the boom-and-bust markets of the housing bubble,” says CoStar Portfolio Strategy Senior Consultant Juan Arias. “But that doesn’t mean they’re not great markets now. We’re not in the same type of boom-bust housing cycle that we saw. In fact, we’re under-housed now.”
The movement from coastal cities to many of these areas, primarily in the Sunbelt, is a big reason these high-growth markets are so hot. But it’s not the only factor.
Arias lists Atlanta, Austin Allen, Denver, Houston and the Inland Empire as some of the most important high-growth markets for the industrial sector.
Some of these markets are high-growth because of their proximity to high-cost markets.
“The Inland Empire is marked as a growth because it’s seeing a significant amount of people coming in from LA,” Arias says. “Historically, it had been a huge industrial market, but now you’re getting such strong coupled growth from coming in from LA. It’s not just the logistics market. It’s going to be attractive for last-mile and all of these other types of delivery.”
Northern New Jersey and Olympia, Wash., are other markets near coastal cities that show strong growth potential but aren’t in the Sunbelt.
“A lot of this household growth is going towards more of the suburban areas,” Arias says. “Seattle and Olympia are good suburban industrial markets.”
Other strong markets are Philadelphia, Portland, Sacramento, Reno and Trenton. “It’s just a mix of markets that have strong household growth and are seeing strong industrial demand,” Arias says. “They are also priced at an attractive cap rate for industrial, where you can still get good returns.”
Arias also lists Las Vegas as a high-growth market, even though it has been battered by the sharp decline in tourism during the pandemic.
“These market classifications were done pre-pandemic,” Arias says. “And even though Las Vegas is suffering significantly due to the tourism and the casinos slowing down, demographic growth has been so strong that we expect it to bounce back.”
The demographic growth in many of these cities began to accelerate in 2015, according to Arias. “It accelerated back around 2015 and now with the pandemic,” he says. “They [many of these markets] were not locked down as stringently as some of the higher-cost markets. So their economies are recuperating at a slightly faster rate.”
Arias says many of these markets also have lower unemployment insurance claims, and their unemployment rate rates tend to be lower. “They’ve recuperated faster, and they have these demographic tailwinds,” Arias says.