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THE RISING SOUTH

As the U.S. population continues to migrate toward the South and Florida, retailers and developers are competing to establish a firm foothold in the region.

By Joel Groover

No one can ever predict with 100 percent accuracy what changes will occur in a region over 20 or 30 years, of course. But the prognostications about the Southern U.S. affirm with confidence this one thing: Massive growth is on the way.

Global marketing guru James A. Taylor recently coined the phrase “Manifest Destiny 3.0” to describe what he calls “the third great American migration” (the first two being the non-native people’s settlement of the West in the 19th century and the movement out of the Dust Bowl in the 1930s), this one to the South over the next two decades.

Taylor, called by The Wall Street Journal one of the country’s top five business futurists, says the South’s pleasant climate, strong economy and relatively low cost of living will lure some 50 million people — and trillions of dollars in industrial capital — below the 35th parallel by 2025.

Taylor’s crystal ball encompasses the entire South, including parts of the Southwest, but many of the most far-reaching economic and demographic shifts are certain to occur in the fast-growing South, says Ferrel Guillory, director of the Program on Southern Politics, Media and Public Life at the University of North Carolina at Chapel Hill.

Indeed, the metamorphosis of much of the South — from the opening of new auto plants and Fortune 500 corporate headquarters to the influx of Hispanic immigrants — is well under way, Guillory notes. “The Southeast has become especially robust economically,” he said. “People are moving here in part because of the climate, in part because of amenities and in large part because of jobs.”

The face of growth
The U.S. Census Bureau says Florida, North Carolina and Georgia in particular will experience unprecedented population growth over the next 25 years. These projections, released in the spring, expect Florida’s 2000 population of 15.9 million to nearly double to 28.6 million by 2030. The arrival of 12.7 million new residents would make the Sunshine State the third most populous in the country. (It now ranks fourth, behind California, Texas and New York.)

North Carolina’s population will skyrocket 52 percent to 12.2 million by 2030, the bureau says, with Georgia’s shooting up 46.8 percent to 12 million. The populations of Tennessee and South Carolina will increase 29.7 percent and 28.3 percent, respectively. Growth will be slower but still respectable for Alabama (9.6 percent), Arkansas (9 percent) Mississippi (8.7 percent) and Louisiana (7.5 percent).

“These numbers are straight-line projections, and they aren’t necessarily going to play out exactly that way,” Guillory said, “but they do tell us that we’ve got to get prepared.”

Retail developers are certainly doing their best to be ready for the surge. In metro Atlanta, which boasts four of the fastest-growing counties in the U.S., about 2.6 million square feet of new retail space will be completed this year, according to Marcus & Millichap research. That comes on top of 2.8 million square feet that opened last year.

Other major Southern markets, too, are seeing loads of retail space delivered this year, Marcus & Millichap says. Charlotte, N.C., will complete some 2 million square feet and the Florida cities of Fort Lauderdale, Jacksonville, Miami, Orlando, Tampa and West Palm Beach will each add more than 1 million square feet.

The cost of growth
The strategy of some developers could be summed up in two words: Act now. Besides the money to be made in the short term, moving into hot growth markets today will allow them to avoid development barriers that, at least in the South’s densest markets, are sure to get harder. Such growth will boost retail demand, but it will also jack up real estate prices, tighten permitting restrictions and raise impact fees, developers say.

“The growth carries with it its own set of problems,” said Michael B. Wiggins, senior vice president of the retail division at Crosland, which has 2.5 million square feet under construction throughout the South. The Charlotte, N.C.-based development firm recently opened an office in Orlando that serves as home base for its ongoing expansion into central Florida, particularly Tampa. “We feel there is a good deal of in-migration in the Tampa market, with the job growth and retiree move-in.”

Chattanooga, Tenn.-based CBL & Associates Properties is also moving into the Florida markets projected to take off, says Michael I. Lebovitz, CBL’s senior vice president of mall projects. One example is the firm’s joint venture with the Cleveland-based Richard E. Jacobs Group on Gulf Coast Town Center, in the Fort Myers/Naples area. The 1.7 million-square-foot open-air center will offer about 120 specialty shops and restaurants. The first of three phases opens this fall.

“A lot of professionals are moving down to support the growth in the retirement market,” said Lebovitz. “We know it is going to be a long-term successful development.”

The Atlanta suburb of Douglasville was comparatively sleepy in 1999 when CBL opened Arbor Place Mall, Lebovitz says. But the primary trade area, which had a population of 178,601 in 1990, is projected to grow to 340,656 by 2009.

Your tired, your poor, your gray
As developers and retailers continue to build up their presence in the region, two key trends will exert an influence, says Lee A. Diercks, a partner and managing director at Clear Thinking Group, a Hillsborough, N.J.-based retail consultant firm. “Basically, there are two primary forces at work that will significantly impact the retail marketplace in the Southeast,” Diercks said. “One is the ‘graying’ of America, the other is immigration.”

If Census Bureau projections prove correct, the U.S. senior population will rise nearly 150 percent by mid century, with the oldest of the 79 million baby boomers becoming eligible for Social Security benefits in 2008. This much-anticipated graying of the U.S. population will disproportionately affect the South as millions of these affluent, active and health-conscious boomers flock to the region, demographers say.

For hints about how this could affect the retail industry, look no further than the changes already afoot, says Rich Hollander, president of the CustomerID division of Fort Worth, Texas-based Buxton, a customer analysis and market research firm.

Undoubtedly, the infirmities of aging will fuel demand for such conventional health-care-related tenants as medical offices, drugstores, and physical therapy clinics, says Hollander. Medical one-stop shopping centers, such as The Health and Fitness Mall, Norcross, Ga., and Chesapeake Health Park, scheduled to open next year in Pasadena, Md., are at the vanguard of this kind of healthcare-oriented retail.

Living well
But the South is also going to be a hotbed for unconventional tenants catering to the boomers’ keen interest in wellness and quality of life, Hollander says.

In Berkeley, Calif., Elephant Pharmacy, which bills itself as the city’s “One-Stop Wellness Store,” may well serve as a prototype of things to come, according to Hollander. The 13,000-square-foot Elephant Pharmacy, launched in 2002 with boomers specifically in mind, sells the same prescription drugs that Walgreens and CVS carry, but it also offers herbal medicines, Pilates workouts and classes on “Buddhist psychology,” therapeutic massage and more. “They’re not in the Southeast now,” Hollander said, “but they will be there one day.”

Count on the national chains to jump into this wellness business too. This year Minneapolis-based Best Buy launched a small-format test store in Richfield, Minn., called Eq-life, for instance. Eq-life helps customers use technology to manage their health and wellness, says spokeswoman Sue Lee. The store’s New Age-type marketing messages urge shoppers to “breathe deeply” and “find equilibrium.”

“Even RadioShack stores have health sections now where you have blood-pressure monitors, air purifiers and things like that,” Hollander said. “Anything that will help people live better, including furnishings, all of that will continue to grow in the South.”

And as these snowbirds flee to Florida from the upper Midwest and Northeast, retailers traditionally focused on those regions are starting to consider expansion in the South. Fortunoff, the home furnishings and jewelry chain that operates six stores in New York and New Jersey, for instance, said it signed a lease on a store in Florida after getting a $250 million cash infusion from New York City-based investment firm Trimaran Capital Partners. The location of this store, which is to measure between 100,000 square feet and 150,000 square feet, will be announced later this year. Analysts speculate that the chain may open several stores in the state, because so many relocated New Yorkers recall the store’s distinct identity.

Spanish conquest
Just as the age makeup of the South’s population is likely to change, so, too, its ethnic makeup. According to the Census Bureau, the Hispanic populations of five Southern states — Alabama, the Carolinas, Georgia and Tennessee — more than doubled from 1990 to 2000. The bureau projects that by 2050, the total U.S. Hispanic population will be nearly three times what it was in 2000, 102.5 million versus 35.6 million.

The smart retail chains will hire more in-house demographics and marketing experts to better understand the needs of the growing communities of Hispanic and other immigrants, Diercks says. “The level of immigration and how retailers cater to that diverse customer mix is going to be critical,” he said. “It will make or break a lot of retailers moving forward.”

Jacksonville, Fla.-based Publix, for one, is already gearing up. The supermarket chain, whose 853 stores are heavily concentrated in the South, recently opened two Hispanic-targeting Publix Sabor stores in the Orlando, Fla., metro area.

Meanwhile, affluent white-collar workers’ Southerly migrations, which transformed the New South in the 1980s and ’90s, will continue to bolster the economy, demographers say.

In Charlotte, N.C., for example, a major banking center, 8,468 new firms have invested some $9.6 billion in new facilities during the past 10 years, according to the Charlotte Chamber of Commerce.

Metro Atlanta is now home to 13 Fortune 500 and 24 Fortune 1,000 corporate headquarters. AirTran Airways, Del Monte Foods, Fidelity & Guarantee Life, Life Therapeutics, Newell Rubbermaid and Rayovac have all relocated to the area last year alone, the Atlanta Chamber of Commerce says.

A confluence of favorable factors, including lower taxes, cheaper labor, fewer regulations and an availability of land, are behind the trend, says Bernard J. Haddigan, a senior vice president and managing director at the Atlanta office of Marcus & Millichap. Frequently, the opposite is the case in the industrial corridors of the Northeast, and this explains why Philadelphia has lost population over the past 45 years and Massachusetts has done the same for the past two.

Is West best?
Despite the phenomenal growth of the South, some developers prefer to focus on California and other West Coast markets, where they see the growth patterns as being more predictable. Developers Diversified Realty Corp., for one, is pursuing more development opportunities in the Los Angeles and San Francisco areas, said Tony Vodicka, the firm’s senior vice president of leasing, at an investor conference. “The West Coast is less volatile than the fragmented and uncertain growth patterns in certain areas of the Southeast.”

But that, observers say, was an anomaly — the result of growth in areas where officials failed to plan properly or where there was a lack of geographical boundaries to contain sprawl, observers say. “Now that the suburbs have grown, look for the exurbs to explode,” said John M. Crossman, senior vice president and director of investment services at Trammell Crow’s Orlando office. “The concern here will be areas that get leapfrogged and that suffer from vacancy.”

Such fast-paced growth, Guillory says, presents sleepy Southern communities with a big challenge: preserving their traditional way of life while promoting economic activity.

“This growth, which in many places has become pell-mell, the South was not ready for,” Guillory said. “You look at Charlotte and Atlanta, and you get these sprawling metro areas that are not dense and have a lot of traffic problems. In the Southeast we want our ruralness, but we want it in a metropolitan setting.”

But if the South is to be able to strike that balance in the future, it should not ignore the developers’ mantra: Act now.

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