Ever-growing cross-border trade activity
and steady population inflows are keeping southwestern
U.S. states bright on sight seekers' radar screens.

E

ven as business expansion decision-makers weigh more heavily the economic implications of location options, enough seem content with the U.S. Southwest to keep the region's economic development engine humming. The key fuel, say experts, is the surge in new jobs and facilities created by the North American Free Trade Agreement (NAFTA), which directly benefits the economies of Arizona, New Mexico and Texas and indirectly benefits the two other states in the region, Oklahoma and Arkansas.
      But NAFTA is only part of the story. The bigger picture has to do with the region's success in attracting businesses in such key industries as semiconductors, aerospace, ad-vanced manufacturing, biomedical sciences and others that make past associations with the Southwest -- as a region best suited for ranching and oil drilling, for instance -- seem prehistoric.
      It's hard to imagine an energy shortage in a region so closely aligned with the energy industry, and indeed, the supply and affordability of energy for industry are key attributes of the region. In fact, Texas will likely avoid the energy problems plaguing other states, because the state is independent of the national grid.
      It produces its own energy. Just as important is labor supply, and a healthy population inflow for the past decade supports the region's ability to compete on a number of labor fronts with other parts of the U.S. New Mexico's civilian labor force has grown from 560,000 in 1980 to 850,000 in 2001. And Texas's civilian labor force has grown to 10.5 million this year from 6.7 million in 1980.
      "In the Southwest, I see a continuation of some positive migration trends the region has been experiencing relative to the Midwest and Northeast for a few years now," says Lee Moreland, vice president and southwest regional manager at CMD Realty Investors (www.cmdrealty.com), Chicago. Moreland works in the firm's Houston office. "The cost of living, tax situations that are generally more positive and the quality of life should continue to allow the region to outperform other regions in net migration for several more years."
      Nevertheless, the region is hardly immune to the effects of the national economic slowdown. High-tech players are downsizing their payrolls in some markets, particularly Texas, which can adversely impact economic growth for a time. And suburban office vacancy rates rose in the first quarter of 2001 in all four southwestern cities named in a report issued by Colliers International (www.colliers.com). As of March 31, 2001, the suburban office vacancy rate in greater Austin, Texas, was 9.4 percent (up from 4.7 percent at year-end 2000); Dallas had a 12.6 percent vacancy rate (10.8 percent); Houston stood at 16.3 percent (16 percent); and Phoenix was at 13.5 percent (up from 12.7 percent). Downtown office markets in the same cities tell a similar story, with rising vacancy rates in Austin and Phoenix and no significant change in Dallas or Houston.