2nd Quarter 2019
Market Watch
by Joe A. Hollingsworth, Jr.
What a nice time to be an industrial property developer, owner, or investor in the Midwest or the South! It almost feels like a warm, spring day when the sun pops out, and everything is beginning to bloom. Finally, all the low-tax state citizens that have been subsidizing the high-tax state citizens of the Northeast and California have gotten their “reprieve”. We are going to be hearing the constant whining from the Illinois, New Jersey, Connecticut, etc. states about how their citizens are being “stolen” by the low-tax states. However, in all reality, “the worm has turned”. For the first time in literally decades, SALT (state and local taxes) are not slanted toward subsidizing the citizens of the high-tax states through their federal income tax deductions. They are actually having to pay their fair share. Therefore, the statement that the citizens that have been “stolen” that Governor Cuomo constantly talks about is not accurate. In fact, Governor Cuomo’s citizens have been “stealing” from the citizens of low-tax states for decades through the subsidizing of taxes with us paying higher federal taxes to accommodate them paying lower federal taxes.
When higher income individuals move (generally influenced by their age), they are not bringing children for the local government to have to school. However, they do bring a sense of knowledge, work experience, consulting ability; and, probably most importantly, they bring capital and the willingness to invest it. In some cases, they become “angel investors”. Now, it is true that the people in the Midwest and the South have to educate them to not convert our areas to high-tax states. However, if we can get them over that hurdle, a lot of good things happen with our Northeast transplants. Where there is population, commerce follows. Therefore, industrial and distribution projects bloom!
Industrial real estate in most cases follows population migrations. From the invention of air conditioning in the South, the great migration of population began, now culminating in the South having such a vibrant and dynamic economy. Out of each recession, the South has gotten proportionately stronger compared to the other regions of the country. Therefore, this bodes well for real estate investment, both short-term and long-term in the Midwest (except Illinois) and the South. Cities like Nashville are becoming the new Philadelphia. In fact, one percent of the world’s cranes are currently in Nashville. Tertiary cities near the interstates in the South and Midwest are becoming hot growth areas; because, they still have labor, and they are attracting business to utilize that labor.
We are just now hitting the sweet spot. As I mentioned before, industrial cycles (compared to residential and commercial cycles) are much longer in length and much more stable. Population migration, lower regulation, and less taxation is a winning combination.
Enjoy the sunlight of the a spring day!
