The path to America's wallet runs through its stomach — and retailers see green in the growing Sun Belt.

The impact of the pandemic on public opinion about life in large cities has become evident. Many people have realized that living in megacities does not always meet expectations. As a result, over the past four years, there has been a significant population growth in a region known as the Sun Belt, which opens up new horizons for business. As of 2022, 12 out of the 15 fastest-growing cities were located in the Sun Belt, which includes the southeastern and southwestern states of the USA. According to census data, from April 2020 to July 2022, the population of the South increased by 3.9 million people, particularly noticeable in states like Florida, Georgia, and Texas. This led to a rapid increase in demand for commercial real estate, with 13% fewer available spaces in the Sun Belt compared to national statistics, according to JLL data. The most active markets in terms of population growth between mid-2022 and mid-2023 were also in this region.

Expert opinion

“We aim to open only successful locations, so we will focus our efforts in regions with the highest chances of success,” he says.Navin Jaggi“The maximum chances for success are ensured by a favorable climate that allows people to be outdoors for most of the year, and the Sun Belt provides just that,” said the president of the retail consulting service at JLL.

Customer preferences

Americans prefer to shop in shopping centers, including grocery stores, which provides a nearly unique experience. Jaggi noted that retailers strive to be located near stores with high foot traffic.

Competition in the market

According to data from the analytics company Dunnhumby, Aldi's expansion in the South may put pressure on existing competitors like Publix, which is also actively opening new stores not only in its home state but also in Kentucky and Virginia, while increasing its presence in Tennessee and Georgia. "If you visit a shopping center with stores under the Kroger, Albertsons, HEB, or Publix brands, you will find a wide range of essential goods – both food and various related products," added Jaggi. "Understanding people's preferences allows retailers to choose successful locations for their stores."

Growth factors

Among the factors contributing to the growth of the Sun Belt is not only the pandemic but also a change in lifestyle. Working from home, people began moving to warmer regions, which affected the dynamics of the real estate market. Data from JLL shows that the total amount of office space is increasing; however, development in the Sun Belt is more active due to lower costs. In the third quarter of 2023, more than half of new relocations were to Dallas-Fort Worth, Florida, and Charlotte. A survey conducted by CBRE among commercial real estate investors revealed that Dallas, Miami, Raleigh, Atlanta, and Nashville are the most attractive markets for investment.

Mixed-use real estate

“Mixed-use real estate represents an attractive asset class, but it is very complex due to the combination of office, residential, and retail spaces,” Jaggi explained, adding that this is why the number of potential buyers for such shopping centers is limited compared to the broader market for centers that are product-related.

This report was originally published inRetail Brew.