Population Migrations Impacting Multifamily, Office Real Estate in Southeast

By Richard Rennell

As part of a financial institution with a Birmingham, Alabama headquarters and wide presence throughout the southeastern United States, the Regions Real Estate Capital Markets team often gets asked for its thoughts on the regional trends occurring within commercial and multifamily real estate. Unsurprisingly today, many of our customers (which include a wide range of real estate owners) are watching the economy, inflation, interest rates, rental rates and more to determine how all of these dynamics will impact their properties, portfolios and ability to finance.

Following are some Southeast real estate trends, as well as an exploration of how they are impacting the availability of finance for commercial and multifamily properties today. While our clients do own properties across all of the major commercial real estate asset classes, we will focus on apartments and office here.

Impacts of Migration

The mass migrations of people away from large expensive metros like Los Angeles and New York City toward markets in the Southeast and Southwest during the pandemic demonstrated a strong desire among many Americans to live in places offering more space, greater affordability and overall improved quality of life. In addition to Texas, Southeast markets have figured largely in these migrations and 2022 trends followed a similar pattern to 2021. While Texas took the top spot in 2022, Florida, South Carolina, North Carolina, Tennessee and Georgia were all top ten destination states last year.[i]

The recent migration influx into Southeast markets influence both office and multifamily real estate in the region.

Office Dynamics & Occupancy

With so much of the workforce moving into southeastern markets, companies have begun to follow suit with headquarter moves. Despite these company moves, many are still operating with hybrid work models. Thus, occupancy challenges across the office sector persist, especially among older, downtown located and poorly amenitized assets. It’s worth noting, however, that Southeast markets don’t have as many hard-hit office buildings as the Pacific and Northeast regions do. [ii]

Apartment Affordability, Availability

Rental rates during and post-pandemic rose sharply in Southeast markets. While rent growth has slowed over the past several months, four of six of the top rent growth markets over the past three years are located in the Southeast. These include Tampa ranked #1 in rent growth at 39%, Miami ranked 3rd with 37% rent growth, Jacksonville ranked 5th with 30% rent growth and Orlando ranked 6th with 30% rent growth.[iii]

Much like the rest of the country, the Southeast falls short in one area of apartments. Every single state in the region lacks the supply of affordable and available apartments needed to serve American households of lower incomes. Florida has just 23 affordable and available rentals for every 100 needed. The other states in the region come in with 34 in Georgia, 39 in North Carolina, 39 in Louisiana, 41 in Tennessee, 42 in South Carolina, 46 in Kentucky, 47 in Arkansas, 49 in Alabama, and 51 in Mississippi for every 100 needed.[iv]

Finance Outlook

The Federal Reserve has been working to subdue inflation with incremental interest rate hikes. However, it now must balance its desire to address inflation with negative impacts that continued interest rate rises can bring. Lenders operating today are understandably cautious, though lending hasn’t ceased.

Financing prospects vary for office and multifamily properties. For example, ideally located office properties with low occupancy, well capitalized credit tenants on longer term 5- to 10-year lease agreements will likely qualify for better financing options than properties less ideally located with low occupancy and tenants secured by short-term leases.

Generally speaking though, multifamily finance is easier to source, especially for affordable and workforce properties. That said, interest rates have certainly impacted the market. Borrowers today should be prepared to meet increased lender requirements.

If seeking finance to acquire or refinance properties, borrowers are encouraged to explore all available options, be flexible and, when relevant, look for options with government-sponsored enterprises like Freddie Mac and Fannie Mae. These agencies are mission-driven and aim to provide finance options, even during times of economic uncertainty. To access agency options, borrowers should engage a trusted agency lender partner like Regions for guidance.

[i] U-Haul Growth States of 2022: Texas, Florida Top List Again, U-Haul, January 3, 2023, https://www.uhaul.com/Articles/About/U-Haul-Growth-States-Of-2022-Texas-Florida-Top-List-Again-28337/

[ii] The Office Buildings Struggling the Most Share Several Characteristics, GlobeSt, April 7, 2023, https://www.globest.com/2023/04/07/the-office-buildings-struggling-the-most-share-several-characteristics/

[iii] Apartment List National Rent Report, Apartment List, April 2023, https://www.apartmentlist.com/research/national-rent-data

[iv] The Gap: A Shortage of Affordable Rental Homes, National Low Income Housing Coalition, March 2023, https://nlihc.org/gap