Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
In the commercial real estate business there’s a lot of talk about primary, secondary and tertiary markets. What’s not obvious is where each city slots in.
The characteristics that differentiate primary, secondary, and tertiary markets are constantly evolving in response to changes in the city’s population and the volume of real estate transactions.
As a starting point, we loosely sort metro areas by population. A primary market has 5 million+ people. A secondary market has 2-5 million people. And a tertiary market is under 2 million people. But it’s not all about population…growth and demand matters too.
What most agree on is that Boston, Chicago, Los Angeles, New York, San Francisco, and Washington D.C. are primary markets. Some consider Dallas-Fort Worth and Houston to be as well. These cities are powerhouses in terms of their population, real estate market, and economic impact.
Secondary markets are generally mid-sized cities that have begun to experience an uptick in growth. We see steady growth in the local economy, with new jobs and businesses opening up, as well as an emerging tech sector in many cases. We also see steady growth in the city’s population as young, educated professionals and families move in.
The housing market steadily gains strength but remains less competitive than primary markets resulting in lower prices for homebuyers and higher returns for investors. In the rental market, occupancy rates begin to rise; but because the supply of apartments is relatively unconstrained, rent prices stay affordable for most residents.
Some experts believe that secondary markets have more room to grow than primary markets, which are constrained by buyers’ dwindling ability to afford these markets’ steep prices. On average, the cost of doing business in secondary markets is 16% lower than in primary markets. Real estate costs are 38% lower in secondary markets, energy costs are 22% lower, and labor costs are 14% lower than in primary markets.
Overall, in relation to income, home prices are 45% more affordable in secondary markets. This is one of many factors making secondary markets highly attractive to investors and homebuyers alike. As more people and businesses make the move into thriving secondary markets, strong rent growth and occupancy rates will present big opportunities for property managers and owners looking to grow in new directions.
So what secondary markets are investors most focused on now?
- Austin, Texas
- Charleston, South Carolina
- Charlotte, North Carolina
- Denver, Colorado
- Miami, Florida
- Nashville, Tennessee
- Orlando, Florida
- Portland, Oregon
- Raleigh, North Carolina
- San Antonio, Texas
- Tampa, Florida
- Boise, Idaho
- Columbus, Ohio
- Jacksonville, Florida
- Las Vegas, Nevada
- Minneapolis, Minnesota
- Phoenix, Arizona
- San Diego, California
- San Jose, California
Tertiary markets are smaller metro areas that are not large enough to be primary or secondary markets. Investments in these markets can be riskier, but have the potential for high returns.
Tertiary Markets can also include larger metro areas that are not experiencing growth…like Milwaukee, WI for example.
Investors will never fully agree where to slot each commercial real estate market…but start with population and then adjust up/down for growth…and you’re pretty much there.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com