2024 Outlook: Florida’s Population Story Keeps Marching On

Back in late 2022, when the U.S. Census Bureau reported that Florida was the fastest-growing state in the nation for the first time in decades, we broadcast the news far and wide. It was reinforcing of our story about Florida’s economy and office market.

The Census Bureau’s latest state population report came out in late December 2023, and it shows Florida dipped from first place to second. But we’re not backing away from Florida’s growth story. In fact, we’re doubling down.

U.S. Census Bureau

Here’s why: Florida did indeed slip to second in the population growth rankings, posting a 1.6% gain compared to South Carolina’s 1.7%. But: Florida has four times the population as South Carolina, and the law of large numbers means that it is much harder for a big state to grow by a large percentage of residents.

According to the Census estimates, Florida added more than 365,000 residents from mid-2022 to mid-2023. Only Texas, with population growth of 473,000, outpaced Florida in the raw number new residents. (And while that chart above shows Florida and Texas in a dead heat, adding a decimal place shows the Sunshine State with a comfortable lead of 1.64%, versus the Lone Star State’s 1.58% pace.)

Meanwhile, Florida has added more than 1 million residents since April 2020. That just happens to be a benchmark date for the decennial census, but it is also a date that corresponds with the start of the coronavirus pandemic in the United States. Pandemic trends have favored Florida – Americans increasingly are choosing to live in Sun Belt states with favorable tax and regulatory climates, a reality reflected in the outsized growth of Florida and Texas. By contrast, the states losing the most residents from mid-2022 to mid-2023 were New York, California, and Illinois.

Another point we have made before that bears repeating: The new generation of transplants to Florida are more affluent than the 20th century influx of retirees, job seekers, and immigrants. They are buying $1 million homes, bringing companies, and driving demand for office space.

Florida’s strong economy keeps rolling, and month after month, the Sunshine State’s job market outpaces that of the nation as a whole. The jobs picture is a key part of the office market, and Florida continues to turn in solid numbers on this front.

State labor officials announced in late November that Florida’s seasonally adjusted unemployment rate was just 2.9% in November 2023. That was well below the national average of 3.7%. Florida’s jobless rate has been lower than the national level for 37 straight months. Florida’s private sector year-over-year job growth rate came in at 2.8% in November, well above the national pace.

In other words, Florida is seeing sunshine and blue skies when it comes to population growth and job growth, two major drivers of office demand.

Attracted by Florida’s combination of abundant sunshine, a manageable regulatory burden and comparatively low taxes, financial firms from New York and Chicago and tech companies from California have been bringing high-paying, office-using jobs to Florida. The result is sustained momentum for the job market – and a boost for office demand. 

A turning point for interest rates

While we have been focusing on the Florida economy, there is a broader story at play, too. The Federal Reserve signaled at its December meeting that it is prepared to stop raising interest rates and instead begin cutting.

The Fed started raising rates in March 2022, a move intended to combat the sharpest inflation experienced by the U.S. economy since the early 1980s. Since then, the Fed has boosted its policy rate target from 0.25% to 5.5%, the highest in more than 20 years.

The Fed has mostly tamed inflation. The pace of price hikes has eased from a year-over-year rate above 9% in mid-2022 to 3.1% in November 2023, according to the most recent consumer price index.

In a welcome piece of news, 10-year Treasury yields pulled in late 2023. In October, 10-year yields hit 5%, a sign that investors expected the Fed to continue boosting rates. However, as inflation has calmed and the job market has cooled (nationally, at least, if not in Florida), bond investors bid 10-year Treasury rates all the way down to less than 4%.

The Fed’s new policy should flow through to the mortgage market – if mortgage rates fall, borrowers will be able to more easily refinance their expiring loans at reasonable rates, and that will relieve some of the pressure on commercial real estate values. At Feldman Equities, we do not try to predict the Fed’s next move but however central bank policy plays out, we are well-positioned to benefit from office market trends in 2024.

The Florida success story

Back to our geographic target area of Florida: Population inflows and job growth are important drivers of office demand. You have seen the dreary headlines about defaults and rising vacancies in many U.S. cities, where vacancy rates of 30% are not uncommon. But that is not the case in Tampa, where the office market is still going strong.

New tenants are moving in, and office vacancy remains low, especially in Class A buildings in downtowns. As of the third quarter of 2023, office vacancy was 11% in the Tampa central business district (CBD) and just 5.2% in St. Petersburg’s CBD, according to commercial real estate brokerage Avison Young. Many of the Tampa region’s suburban markets, by contrast, had vacancy rates above 20%, with some approaching 30%.

As employers and employees gravitate toward amenitized buildings in bustling downtowns, Feldman Equities remains hyper-focused on our strategic sweet spot. We reposition struggling office space, and we build new space in downtown markets. The trend is clear: Employers and workers are gravitating toward Florida’s combination of sunny skies, low taxes and common-sense regulation. And once they are here, they want to work in vibrant downtowns, with convenient access to restaurants and entertainment.

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