Boom times are nothing new to the Southwest Region. A silver boom in Arizona in the 1870s and ‘80s played a part in the building of regional railroads and the founding of communities such as Tombstone. Copper and gold also were mined in the area.
More than a century later, this region — which includes Arizona, Nevada, New Mexico and Utah — finds itself in the midst of yet another gold rush. This time, it has to do with real estate.
The Southwest Region is part of the country’s fast-growing Sun Belt area. Arizona, the region’s economic powerhouse, saw its population grow by nearly 12% from 2010 to 2020, and it now has about 7.3 million residents. Utah was the nation’s fastest-growing state during this time, adding more than 500,000 residents for a growth rate of 18.4%. Nevada followed close behind, growing by 15% to more than 3.1 million residents during the decade. New Mexico’s population had slower growth, increasing by 2.8% to 2.1 million.
With its warm weather, relatively affordable housing and rapid job growth, the Southwest states are expected to continue attracting more people from around the country. The result is some of the highest home-price increases in the U.S. According to Redfin, median home prices in Phoenix skyrocketed by 28% from December 2020 to December 2021. Las Vegas saw gains of 24.8%.
With the COVID-19 pandemic subsiding and population growth booming, these four states have experienced sizzling gross domestic product (GDP) growth. Due largely to renewed tourism, Nevada led the way with 7.9% annualized GDP growth as of fourth-quarter 2021. New Mexico followed with a growth rate of 7.6% while Utah and Arizona recorded increases of 6.5% and 6.2%, respectively.
Arizona had the largest economy in this region as of 2021 with a GDP of $411.2 billion, ranking 20th among all states. Utah followed with a GDP of $220.3 billion (good for 29th place) while Nevada and New Mexico ranked among the bottom 20 states with GDP sizes of $193 billion and $109 billion, respectively.
Mining, agriculture and tourism are pillars of the region’s economy. Arizona remains the leading copper-producing state in the country. Phoenix is home to many top private companies, including PetSmart and Banner Health. Nevada is best known for the tourism centers of Las Vegas and Reno, but it also is a top state for gold, silver and copper mining.
New Mexico is home to major research laboratories that focus on a variety of subjects, including biosciences and cybersecurity. The Land of Enchantment also is a major aerospace center that hosts Sir Richard Branson’s space company, Virgin Galactic. Yet another area of growth is media production. Netflix and NBCUniversal have invested more than $3 billion to create major facilities.
In 2021, Utah’s economy was ranked No. 1 among all states by U.S. News & World Report. The Beehive State boasts a diversified economy that includes outdoors tourism, along with major technology, ranching and farming sectors. Utah is a top producer of nonfuel minerals such as beryllium and copper. ●
The Las Vegas office market continues to suffer through a difficult period due to the continuing impact of the COVID-19 pandemic, according to Cushman & Wakefield. The office vacancy rate for the metro area increased by 180 basis points (bps) year over year to stand at 12.9% in first-quarter 2022.
The vacancy rate at that time was well above the five-year quarterly average of 11.4%. Vacancy rates varied greatly depending on the submarket, ranging from 1.1% in portions of the central business district to 19.8% in outlying areas.
Although the office sector remains sluggish, Cushman & Wakefield reported that the Las Vegas employment market had restored 263,000 of the 277,900 jobs that were lost during first two months of the pandemic, a 95% recovery. There also were a number of sizable office-leasing transactions and property sales in Q1 2022. The most notable was the sale of a 669,000-square-foot building by PBC USA to 3D Investments for $211.5 million.
Focus: Tourism
Tourism has long been one of the major industries for the Southwest Region. After a difficult two-year stretch due to the pandemic, the industry is on the rebound.
The big player in this area is Nevada, where more than 42 million people per year visited prior to the pandemic. In 2019, tourists spent an estimated $42.3 billion in the state. In 2020, that number fell to $20.7 billion. This past February, the visitor volume was up nearly 70% year over year to 2.6 million, an improvement but still 18% below 2019 levels.
Arizona’s tourism industry generated about $15 billion and accounted for more than 160,000 jobs as of 2020. During the first two months of 2022, airport passenger traffic in Arizona was up more than 82% year over year. Utah visitors, who flock to the state’s natural wonders, spent $7 billion and supported roughly 120,000 jobs in 2020. And New Mexico’s outdoors recreation industry contributed $2.3 billion to the state’s GDP that year.
What the locals say
“At the moment, the commercial market in Salt Lake City is strong, but 40-year-high inflation, the likelihood of the Federal Reserve increasing interest rates, and the probability of a recession tends to cloud the outlook for the remainder of 2022 and 2023. Add to that the economic and humanitarian impact of the Russian invasion of Ukraine, supply chain shortages and the rising cost of energy suggests a grim and uncertain future. On a more positive note, Utah is experiencing strong fundamentals with a growing population, young workforce and stable political environment. Utah has a strategic advantage of being the crossroads to the West.”
Garry Barnes
Director
PW Partners Consultancy
3 Cities to Watch
Las Cruces
Laid out by the U.S. Army shortly after the Mexican-American war ended, Las Cruces has a population of about 111,400 and is the second-largest city in New Mexico. It sits at an elevation of nearly 4,000 feet and is part of the commercial spaceflight movement. The nearby Spaceport America is home to the commercial space program of Virgin Galactic. Other key operations and employers in the area include New Mexico State University, NASA’s White Sands Test Facility and the White Sands Missile Range.
Reno
The third-largest city in Nevada behind Las Vegas and Henderson, Reno is home to more than 264,000 people. Officially established in 1868, Reno is known as the “Biggest Little City in the World” because of its big-city amenities. Reno has become a tourism, gaming and entertainment hub for northwestern Nevada. The city is home to the University of Nevada at Reno along with a burgeoning technology sector and health care companies such as Renown Health and St. Mary’s Regional Medical Center.
Orem
Located along the eastern shore of Utah Lake and bordering Provo to the north, Orem is Utah’s fifth-largest city with 98,000 residents. The community has a strong high-tech sector, which includes companies such as Fishbowl, a popular management solutions product for QuickBooks that was recently acquired by a Los Angeles-based private equity firm. Orem is nicknamed “Family City USA.” It is known for its quality of life and its proximity to outdoors activities, including several nearby ski resorts.
Sources: Arizona Office of Tourism, Associated Press, Britannica.com, City of Reno, Computing Technology Industry Association, Cushman & Wakefield, Encyclopedia.com, Forbes, Headwaters Economics, LasCruces.com, Los Alamos National Laboratory, Lowell Observatory, Nevada Resort Association, New Mexico Economic Development Department, Redfin, Spaceport America, Trading Economics, Utah Office of Tourism, WorldAtlas.com, WorldCapitalCities.com, World Population Review
