One of our core beliefs is that the 100 year Meta trend of urbanization will continue. And it will continue, especially in the fastest growing markets. Whenever we’re looking for risk adjusted returns and be able to compare them across different metros, we’re also looking at the population growth because as the population grows, so does the demand for real estate and the corollary assets.
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As the asset types have their demand that’s growing in the ascent, so are also the corollaries. So for instance, as a family moves into a new market, the demand for logistics, for retail, for office space will incrementally grow.And so as the population growth exceeds what it was before sold the demand for commercial real estate in a traditional market, the trend of urbanization is a 100 year trend. So the impact of COVID, although real, is not something that would be significant because it was a two year trend within the 100 year meta trend, we do think there were some impacts that will basically be improvements to the delivery of services and products and convenience for the consumer and perhaps an impact on the use of office space.The classes of office space will become very, very important, whether it be a trim towards the Class A and very distinctive urban historical buildings. So as you look at these top ten fastest growing U.S. Major markets, we see some interesting things.
The Texas Region
And so from our perspective, we would put the Dallas Fort Worth market as number one. The annualized growth has been about 2.2% over the last decade and it’s been very strong. Obviously, you have Dallas and Fort Worth combined and then you have all the auxiliary cities around it. And what’s interesting about Dallas Fort Worth is that it is a land port. It doesn’t have water access like many of these other cities do. And so it competes based off its land logistics, just real infrastructure, it’s highway infrastructure. And so that’s a great place to be. Very friendly business client. And what you’ll see is three of these cities are actually in Texas, which has from some observers the best business climate available because the government is more lackadaisical and regulating business, more free enterprise based.
Number two, we believe, is the Houston Woodland Sugar Land Major metro area analyzed growth around 2.27%. So it’s growing slightly faster than Dallas and it also has a friendly business client. What’s interesting about Houston will often interject the idea of politics impacting real estate values is that the core, the urban is controlled by very, very moderate political parties. And the circumference, the cities that are on the outliers, are controlled by extremely conservative influences. And so those two tend to work very, very well. You have a little bit of an overlay of the two philosophies and you don’t have these radical extreme perspectives.
Now, with number three, that’s not the case. You have Austin, which is also the new home to Tesla. There’s a lot of really great growth there in the tech sector. Over the last ten years, they’ve grown about 3% a year. It’s reduced a little bit to 2% a year. And it’s just been fantastic. They’ve got about 450,000 headcount growth since 2010. Great market to be in. Also a land port city. It drives a lot of its growth from the technology sector and it’s proximity to Austin and also the highway system that leads you up to Dallas. And so it’s part of this golden triangle.
Austin is proximity to San Antonio. Proximity to Houston. Proximity to Dallas. And so there’s this golden triangle where there’s a great deal of growth happening in Texas. And they also have the problems that are indicative of radical politics. Rampant homelessness, rampant crime. They don’t enforce the crime, taxation. There’s all these elements there. And so the ability for Austin to thrive will be subjugated on the growth of the new businesses coming in. And a lot of the growth of the business is coming in, stimulated by the Texas Enterprise Fund, which stimulates inner growth within Texas than all the major markets. And so Austin is a great market to be in. The prices are a little bit inflated right now. However, it is a very fast growing market, probably the fastest growing market in the entire U.S. at this time.
The Southeastern Region
The energy impact has really affected the next one, the Miami, Fort Lauderdale, West Palm Beach area. You see a lot of the triculation from the Northeast, the Manhattan area, even Washington DC. Into this area of Florida, where the energy is very, very high. We were last there a decade ago. We were there last month. The restaurant scene is phenomenal now. It was abysmal a decade ago. High rises are plenty everywhere. It looks like the country of Panama and Panama City right now. It’s a great case for the role of energy growing in economy and a great place to invest the market costs there. The yields are a little bit on the low side from a cap rate perspective, but we think those will be readjusting anytime the next six months.
Finally, you’ve got this Orlando, Kissimmee, Florida area. Again, you see these two great trends with Texas and Florida, these beacons of free enterprise, open business. This is a fair type of approach to business where the government gets out of it and allows business people to operate. Indicative of this is a low burdensome permitting process. It doesn’t take you years and years to get permits like it would in some cities, but they allow you to operate as you would like. There’s also low or no income taxes. And Orlando is really great because it has this unique diversity between industrial logistics, technology and entertainment markets that help drive it.
The Southwestern Region
Number four, you’ve got Phoenix. Great growth market. Very, very strong from an industrial aspect. Very, very warm climate, low taxation, low government interference in the operations of business. Great place to be. Likewise, Atlanta. Atlanta, Sandy Springs, Roswell, Georgia area has been strong for a number of years now. Great industrial growth, great manufacturing growth. Just a great economy. Very, very strong.
The Northeastern Region
You also have the Washington, Arlington, Alexandra, DC. area has a lot of growth based on federal government growth, about 1.3% per year over the last decade.
The Northwestern Region
You have the Seattle, Tacoma, Bellevue, Washington area, which again, is balanced with a little bit of eccentric-ism in the politics and a little bit of conservatives in the politics, but a great market in the Northwest whereby they can access the California markets and also the far northeast northwest markets up into Canada as well.
You have the LA, long beach, Anaheim market, which has driven a lot by the Long Beach port an LA port. And with the logistics hold ups recently, you’ll see a lot of investment in the rail lines, the warehousing and the logistics infrastructure there in LA. And you’ll also see further growth. They do have some issues with population and workforce there. For instance, Amazon is said to have run out of the entire or they will have run out of the entire pool of labor by the end of 2023 in the LA market. And so we see some potential stagnation there coming into 2024. That’s possible. But they have had some growth of about 50 bips over the past ten years and their annual growth.
Common Themes for Fast Growth
And so a common theme that you see among these are warm weather, access to logistics and infrastructure, low political vulnerability, so low political extremism, and you also see low taxation. And so these attributes lend these ten markets to have great growth prospects going into the future as an overall group and also gives you an existing data set of population density in which to grow a real estate portfolio and the demand for which that portfolio may exceed its yields compared with smaller, less developed markets.