Link in to Lincoln – Update on the South

The South experienced a halting recovery in 2011, but the region’s economy is poised to “gradually accelerate” in the year ahead, according to recent analysis by Moody’s Analytics. In fact, during the next five years, the South’s economy is predicted to grow at an above-average rate when compared with the rest of the country.

Robust population growth will spark a steady recovery of the region’s ailing housing markets, and increasing demand for exports and automobiles will help drive job growth. Additionally, the overall low cost of doing business often will prove an irresistible lure to businesses looking to relocate.

As you will read, all is not peachy in the South, but the various economic dynamics in play should make the region an intriguing one for commercial real estate professionals.

Housing

2012 should mark the beginning of the slow reawakening of the South’s residential housing market. “Gradually rising in-migration and population growth, particularly in the Southeast, will drive demand,” writes Edward Friedman, a director at Moody’s Analytics.

About 209,230 single-family construction permits were issued in 2011. That’s a dip from 2010, but 486,350 such permits will be issued in 2013. That’s a whopping 132 percent increase from last year’s total. By 2015, more than 675,000 single-family permits will be issued.

Jobs

From 2010 to 2015, the South should experience a 2.3 percent growth in employment. By contrast, employment in the United States as a whole will grow by 1.9 percent in the same five-year period.

At 9.1 percent, the South experienced a higher unemployment rate than some other regions, such as the Northeast and the Midwest, in 2011. But that was in part because the Japanese tsunami in March, and floods, tornadoes and hurricanes later in the year disrupted the area’s manufacturing operations for a while. The effects of those natural disasters have abated, and job figures are benefiting from reconstruction efforts.

Exports and Cars

Over the next few years, the South, which accounts for more exports than any other region in the U.S., should see increased activity at its ports, as trade with Latin American countries will continue to grow. The precarious state of the European economies could impact the region’s distribution industries, but upcoming improvements to the Panama Canal – slated for completion in 2014 – could enable the South to increase exports to Asian markets.

Another source of economic health for the South in the coming years should be the automotive industry. With vehicle sales perking up, car-making plants in the South will benefit. A large share of fuel-efficient vehicles is produced in the South, and the rising demand for such cars will further benefit the region.

The Good and the Bad

While the costs of operations in the South are appealing to businesses and the region is set for significant economic growth, the area does have its drawbacks, Moody’s notes in a brief analysis. Among the cons are what Moody’s characterizes as a “sub-par workforce quality in some areas,” and a vulnerability to reductions in federal defense spending and the globalization of manufacturing operations.

Even so, the South should have much going for it in the years ahead – and that’s good news for commercial real estate professionals in the area.