The Economic Bridge to Nowhere
Imagine you’re riding shotgun in a car speeding over an icy bridge. Halfway across, the driver slams on the brakes, and your financial wagon skids into chaos. The only thing keeping you moving is inertia. Now, realize this isn’t a dream—it’s the economic reality we’ve all been living through.
Over the past few years, 99.9% of us have been navigating dysfunctionally “organized” chaos, at the mercy of leaders who seem woefully unprepared for the challenges at hand. As Americans return to normal life, we’re waking up to a new uncertainty: Are we on the brink of another economic crash, or are these fears just echoes of the Great Recession, lingering in our collective subconscious?
This uncertainty isn’t limited to individuals. For small business owners and commercial real estate investors, the landscape is just as unpredictable. Having worked as a subject matter expert in property tax disputes, I’ve seen firsthand how subjective the concepts of price and value can be.
I've heard it said that following politics will make one go crazy, and the same with is true with respect to macro economics. Following both with the hope of learning how to play the long game in commercial real estate will only prove that we've either gone mad, are lucky, or just blissfully ignorant.
Lessons from Commercial Real Estate
I recently served a national big box chain as a subject matter expert in a dispute about property taxes. The underlying question was if the chain was paying t0o much or too little based on the value of the real estate. The hard truth is that price and value are not the same. Both are subjective and depend on the stakeholder’s perspective. The investor in a 1031 exchange, a developer seeking a ground up project, the Tenant, the bank and the municipality will all have their own points of view.
When asked how the pandemic affected values, almost every answer contains buzz words like " supply chain", but I rarely hear much consideration about how lockdowns, curfews, mandates, or how the printing of money has affected value.
As we "get back to normal" and attempt to forecast the economic conditions and how they impact commercial real estate, we can't forget how the bureaucracies cure was worse than the disease.
Where Do We Go From Here? (Potential solutions)
It’s clear to me that many political leaders are out of their depth when it comes to navigating these challenges, and yet here I am equally unqualified with an opinion in search of a a unifying truth that most could agree on. To that end, it seems reasonable if not cliche to say a course correction is needed.
Retailers will certainly be looking to the trends in migration patterns and retail spending and they will account for regional economic shifts, housing market dynamics, and income disparities shaping consumer behavior and retail performance.
There's a breakdown of how complex the interplay between the data points, but for simplicity between 2020 and 2022, the United States experienced notable shifts in both migration patterns and retail spending ( https://www.census.gov/library/stories/2023/11/state-to-state-migration.html) with several key trends emerging:
Regional Shifts
States in the South and West experienced higher immigration rates than the national average of 19.9%
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Florida, Texas, and the Carolinas saw the largest net domestic migration gains in 2022
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California, New York, Illinois, and New Jersey experienced significant negative net migration
Correlations and Implications
Sun Belt Growth: The increased migration to Southern and Western states correlates with higher retail spending in these regions, potentially driven by the influx of middle and high-income households.
Urban-Suburban Shift: The movement away from large coastal cities may have influenced retail spending patterns, with suburban and smaller city retailers potentially benefiting.
Housing Market Impact: The correlation between housing status and retail spending suggests that long-term homeowners and those who locked in low mortgage rates maintained higher retail spending
Income Disparity: The divergence in spending patterns across income groups indicates that the economic recovery and retail growth have not been uniform across all segments of the population.
One thing migration suggests about the last few years its that people flock to areas where they feel safe, and less constrained by government. No surprise that if follows that retail sales are up in red states and down in blue states. Investment chases opportunity and in places like Tennessee, Texas, and Florida appear to be safer investment for new stores than areas such as NY, California, or Colorado. States with less restrictive policies and growing populations—like Texas and Florida—may offer the most stable opportunities for growth in the years ahead.
We should remember that Freedom is a gateway to prosperity. While the journey across this icy economic bridge has been treacherous, the other side offers new opportunities for those who can steer with care and adapt to the road ahead. For small business owners and investors, the key is to stay focused, follow the signs of growth and migration, and use the lessons of the past few years as a guide. The bridge may have been slippery, but with resilience and a steady hand, we can cross into a future of stability and opportunity.
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