Florida Offers Net Lease Investors More Than Population Growth

Patrick Nutt

In an uncertain market where fewer transactions are happening, the Sun Belt states continue to stand out as a leading choice for investors. While much of the news notes the two biggest growth states as Florida and Texas, there is more behind the data that demonstrates how this population growth is impacting investment preferences.

Last year, it was Texas that experienced the largest net population gain for the one-year period ending July 1, 2022, with more than 450,000 people moving to the state, according to Bank of America Global Research. Florida saw the second-largest net population gain over this same period, as more than 400,000 people moved to the state.

However, a more interesting picture is the amount of wealth being brought into Florida vs. Texas. The latest income migration figures from the U.S. Internal Revenue Service show that while Texas may enjoy the greatest population gain, it is not realizing the same income gain. According to statistics, income migration into Texas is approximately $750,000 per hour.  Florida on the other hand maintains its number one spot in leading the nation in net income migration, gaining $23.7 billion over the year. This breaks down to $2.70 million per hour in new net income to Florida, over three times the rate observed in Texas.  Given the general migration trends, it’s likely not a surprise to learn the biggest losers in the battle for wealth are New York and California, losing $2.2 million and $2.03 million per hour, respectively.

The top states posting net income migration in addition to Florida and Texas include the following Sun Belt states of Arizona, North Carolina, South Carolina, Tennessee, and Nevada.

When you consider where people are moving, it’s not surprising to see that the Sun Belt states, and Florida in particular, are also where they are moving their investment dollars. Which is why there is still plenty of transaction activity in Florida, and cap rate expansion has been muted given the economic headwinds nationally.

Forward-Looking Investments

Deals such as a recent $9.76 million sale of a ground-leased (land ownership) single-tenant Wawa property in Miami, Fla., prove the states’ attraction. With cap rates expanding nationally, this sale closed near a record low cap rate for the brand in the low 4 percent. The investor was focused on finding a net leased property featuring a best-in-class credit tenant within the state of Florida and was willing to accept a lower rate of return in exchange for higher quality real estate. This trade-off of forgoing yield in exchange for quality continues throughout the state as wealth migrates into Florida hourly.

With the added impact of a mild recession in the U.S. economy, investors will use flight to quality as an investment strategy, meaning an enhanced focus on lease duration, credit of the tenant, and especially the location and quality of the underlying real estate.  The best located properties are sure to outperform as we look to the next 12 to 24 months.

Patrick Nutt, SRS Real Estate Partners National Net Lease Group executive vice president & market leader, South Florida