The South Reigns Supreme: How 6 States Are Transforming the Nation's GDP

The Northeast CRE market has long been a national stronghold of financial power. But in recent years, there has been a massive migration away from this region for greener (mostly Southern) pastures where businesses can ease the effects of high taxes, high cost of living, and stricter regulations. 

For reference, when we are talking about the American South, it includes six states:

1. Florida
2. Texas
3. Georgia
4. North Carolina
5. South Carolina
6. Tennessee

Let’s explore why and how 6 states have surpassed the Northeast as the most financially influential region.

The Shift Towards Southern Power

The balance of power in the United States has witnessed an extraordinary shift, as the once-dominant Northeast region is experiencing an unprecedented decline in influence, while the South emerges as a rising powerhouse. This transformation has brought about significant changes in economic and political landscapes, as businesses and individuals are increasingly drawn to the South for its favorable conditions and business-friendly environment.

The migration towards the South is something that’s been observed for the last several years. However only recently has it started to show real, hard implications on where the economic power is centralized.

The country’s GDP has long been dominated by the eight-state-strong Northeast, which refers to:

• Connecticut
• New Hampshire
• Maine
• Massachusetts
• New Jersey
• New York
• Pennsylvania
• Rhode Island
• Vermont

Back in 2009, these states accounted for 24.3% of the country’s total GDP. As a comparison, the southern region contributed 21.6%.

And while many would assume that the shift wouldn’t take place until after the mass-exodus inspired by the pandemic, the headwinds were occurring long before. In 2016, the gap was already closing, with the Northeast contributing 23.8% opposed to the South’s slowly climbing 22.3%.

Even though the shift was in the making, the pandemic is really what set off the divide. And at this point, the South’s explosive growth doesn’t show any signs of slowing while on the other hand the Northeast is rapidly losing populations, and thus, influence.

This trend has not only reshaped the demographic landscape but will also indefinitely affect economic growth, job opportunities, and the overall development of both regions. Stay on top of other critical CRE trends corporate tenants need to follow by subscribing to our blog. 

Northerners Moving South

One of the most significant factors involved in the upheaval is the inverse population dynamics of these two regions.

The pandemic highlighted the difference in living costs and quality as workplace flexibility gave Americans a platform to reevaluate their locations on a mass scale. The disparity in living costs between different regions became more apparent. The lower housing costs, reduced taxes, and overall affordability of daily expenses in business-friendly states in the South have become attractive factors for individuals and businesses alike.

Additionally, the quality of life in the South, with its pleasant climate, natural beauty, and access to recreational activities, has drawn the attention of those seeking a more desirable lifestyle.

So the Southern states experienced massive inbound migration. This was compounded by numerous high-profile business headquarter relocations which brought the shift to the attention of the media. Most often, businesses are making headlines by seizing the business-friendly environments of Texas and Florida.

Data Source: Forbes

Over 500 financial services moved to Florida post-Covid including Goldman Sachs, Citadel, Arch Investments, and Blackstone. At the same time numerous household names have already relocated to Texas (already hosting more Fortune 500 companies than any other state). You'll probably recognize a few:

• Apple
• Oracle
• Tesla
• Hewlett-Packard
• Amazon
• ExxonMobil
• AT&T

But when the southern region is referred to, it’s comprised of more than just the two recent standout stars. 

And not so coincidentally, these states have witnessed booming success (at the stake of the Northeast) at the same time as dramatic population growth. In fact, 5 of these 6 states (Florida, Texas, North and South Carolina, and Tennessee) experienced the country’s most inward migration as The Most Popular States for Relocation.

At the same time, the states with the most external migration were dominated by the Northeast. New Jersey, Connecticut, New York and Massachusetts saw the worst population loss out of the Northeast and were ranked among The States That Most Americans are Leaving.

Other Economic Factors at Play

As economic power continues to grow in accordance with booming populations, the power shift is likely to continue. And as more businesses and Americans seek to take advantage of the region’s perks, the talent pools and business environment will only strengthen.

But, the impressive rise of the South did not exist in a void. The South is committed to retaining a business-friendly climate characterized by low taxes, reasonable cost of living, and a non-obtrusive regulatory environment. Part of maintaining their pro-business mentality is due to the region putting its money where its mouth is.

The South has largely invested in expanding its prominent business reputation. Part of this pursuit is the generous concession packages offered by major metropolitan players in the area.

Moreover, the South boasts a robust infrastructure network and proximity to major markets and growing consumer bases provides expanded market opportunities and access to a larger customer demographic.

Businesses have largely been able to cull the strain on their EBITDA by making moves to these states, and that’s why it is such an observable trend.

The lower cost of living translates to lower overhead in crucial costs like fuel and payroll. Now compound this saving with the extremely affordable commercial real estate and you can understand why hundreds of companies have made the move. In base rent alone, a business can save almost 80% of its office footprint by moving from a city like New York to Tennessee, Florida, or Texas.

And when commercial real estate is typically an organization’s second significant cost, these dramatic savings go a long way to its overall financial picture.

Opportunities for Tenants 

Our country’s economic system has been flipped on its head. However, wise organizations are staying ahead by making critical adjustments to their geography.The important thing to remember is that you have options.

You don’t need to shift your headquarters or entire operations to one of these states to capitalize on their growth. Many companies like Goldman Sachs are retaining their presence in traditional business hubs like NYC. They are doing what works for them but still taking advantage of this unique opportunity to slash overhead through (major or minor) relocations. And at the same time, the migration away from the Northeast provides prospective tenants who want to be based there abundant opportunities to capitalize on increasing vacant space and low demand. 

The point is that by keeping an eye on where Americans are relocating, you will receive invaluable insight into the industrial, political, and financial trends that will continue to develop and shape American culture. Long before the shift in GDP, professionals were claiming that it would take place by paying attention to population trends. So, stay on top of the latest to strengthen your portfolio’s strategic positioning and subscribe to our blog to learn what’s new and other foundational basics for corporate tenants.