Over the course of seven decades, Florida has transformed itself from a backwater into an economic powerhouse. In 1946, Florida was an overlooked state with a population of less than 2.5 million hearty souls – folks who didn’t mind mosquitoes and didn’t need air conditioning. Today, Florida has the nation’s third-largest population (trailing only California and Texas) and the fourth-largest state economy (behind California, Texas and New York).
The Sunshine State’s growth story is far from over. In fact, at 1.9% Florida was the nation’s fastest-growing state from mid-2021 to mid-2022, according to freshly released statistics from the U.S. Census Bureau.
Despite Florida’s explosive growth since World War II, its 2022 showing marked the first time since 1957 that Florida led the nation in population growth by percentage gains, the Census Bureau reports. That’s largely because Nevada, a much smaller state, repeatedly topped the annual ranking.
Florida added 416,754 new residents from mid-2021 to mid-2022, an average of 1,142 new arrivals per day. In a virtuous cycle for Florida’s economy, the in-migration means that new residents are being attracted by Florida’s strong economy – and those new arrivals in turn are creating new economic activity.
For owners of Florida office properties, the state’s strong population growth creates a tailwind, one that supports office occupancy, rental rates and resale values. The influx of companies and people from the Northeast and California helps to mitigate work-from-home trends.
Why Florida is growing
For decades, Florida’s growth recipe was simple. It combined low taxes, including no personal income tax, with comparatively affordable housing and warm weather. During a decades-long building boom that peaked in the early 2000s, new arrivals could expect to purchase a newly constructed house for a fraction of the price they paid for housing in the New York, Boston or Washington, D.C., metro areas.
These days, Florida still offers a compelling value in terms of taxes. The state placed 11th in the Tax Foundation’s ranking of state-by-state tax burdens in 2022.
While an 11th-place showing is strong, it also means that 10 other states – including Georgia, Tennessee and Texas — have more favorable tax climates. In other words, taxes alone aren’t driving Florida’s Covid-era growth. The inflow also is being helped by other factors, such as corporate relocations especially in financial services, beaches, startups, theme parks and nightlife.
A new breed of residents
During the first leg of its growth story, Florida’s surge in population was all about affordability. From the 1950s through the 1990s, middle-income retirees from the Northeast flooded into the condos and retirement communities of Southeast Florida. Midwesterners moved to the state’s Gulf Coast.
Home prices were modest. Taxes were low. And Florida’s three main economic drivers — tourism, construction and agriculture — created a labor economy characterized by notoriously low wages.
Florida’s leaders identified the conundrum and sought to change the state’s image, a strategy illustrated most dramatically by former Gov. Jeb Bush’s investment of more than $1 billion in subsidies to nonprofit biomedical research centers. The effort brought scientists from the Scripps Research Institute, the Burnham Institute and the Max Planck Institute to Florida. While Bush envisioned mimicking the success of biotech hubs in Boston and San Diego, the initiative delivered mixed results. Despite the heavy public investment, Florida’s biotech industry never boomed.
More recently, Florida has become a bona fide destination for financial firms. Billionaire financier Ken Griffin moved the headquarters of his Citadel empire to Miami from Chicago. Griffin long had chafed at Illinois’ tax structure, and he characterized Chicago leaders as indifferent to crime.
Griffin is just one of the new arrivals to Florida. Barry Sternlicht, head of Starwood Capital Group, moved his operations to Miami Beach from Connecticut in 2018. New York hedge fund Elliott Management relocated its headquarters to West Palm Beach in 2020. Locally, Cathie Wood’s Ark Investment brought its headquarters to downtown St. Petersburg.
Elsewhere in the state, investment fund Black Dog Ventures Partners, with offices in Tempe, Arizona, and San Francisco, relocated its headquarters to Tampa. Astronics Test Systems, a subsidiary of Astronics Corp., also announced it was moving its headquarters, from Irvine, California, to Orlando.
Office demand goes hand in hand with a thriving job market. Florida’s unemployment rate of 2.6% in November was more than a full percentage point lower than the national average, according to the U.S. Labor Department. And Florida’s annual job growth rate of 4.7% was No. 2 in the nation, trailing only Texas.
Speaking of Texas, that state is no slouch when it comes to growth. In terms of raw numbers of new residents, Texas’ annual increase of 470,708 people topped Florida’s 416,754, according to the Census Bureau. And Texas has proven attractive to big-name corporations, landing Caterpillar’s home office from the Chicago suburbs and wooing Tesla’s headquarters from Silicon Valley.
What’s more, Florida’s growth story hasn’t been all good news. Miami officials bet big on cryptocurrency just in time for that asset to crash. Long-time residents gripe about crowded roads and soaring living costs. Affluent new arrivals are willing and able to bid up housing prices.
Indeed, Florida’s boom economy has translated to a squeeze on housing affordability. A decade ago, the median home price in the Tampa metro area was just $116,000, and more than 80% of families could easily afford a typical home, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index. By the third quarter of 2022, the median home price had soared to $375,000, a price in reach of fewer than a third of Tampa Bay households.
Any boom brings growing pains, of course. For property investors, the bottom line is that Florida has one of the nation’s healthiest office markets. Downtowns in Miami and West Palm Beach are in the midst of building booms, while the central business districts in Tampa and St. Petersburg are experiencing robust occupancy trends. St. Petersburg is arguably the tightest office market in the Southeast United States.
Office users continue to snap up Florida office space at a pace of millions of square feet per quarter. Office tenants view physical workspaces as places where collaboration and culture-building can be achieved far more effectively than by Zoom meetings. Despite headwinds from the shift to virtual work and a slowing economy, employers continue to value office space – and Florida has emerged as a prime beneficiary of demographic trends.