Major cities like Los Angeles, New York, Chicago, and D.C. are often the focus of commercial real estate investors due to the fact that these primary markets are the center of commerce and populated hubs that offer excellent opportunities for sizable investments, reducing risk considerably.
When it comes to investing in commercial properties, it would be a mistake to overlook tertiary and secondary markets. As investors are seeking profitable niche asset classes, these markets increase hidden opportunities as demand and interest continue to grow.
In this article, we’ll discuss the advantages of investing in tertiary and secondary markets and how they can provide attractive and lucrative opportunities in commercial real estate.
A secondary market, commonly known as a Tier II market, has a population lower than a major market but more than a rural region. These markets allow investors to yield high returns on little investment capital while facing less competition.
The population cap falls on a wide scale, from 500,000 to 5 million. However, some investors define secondary markets based on business growth rates. Dallas, Portland, and Denver fit in the secondary market category; you can also find tier II regions close to gateway cities like San Francisco.
Secondary cities are also experiencing an increase in population due to affordability and attractive job opportunities from younger demographics.
A tertiary market is a smaller metropolitan region, less populated, and possesses an undersized urban core than a primary or secondary market. The population spectrum falls below 1 to 2 million.
Tertiary markets tend to have less industry and spread into suburban areas. Similar to secondary markets, investors factor in population and commerce growth when identifying what constitutes a primary, secondary, or tertiary market.
Tertiary markets are unique as they tend to have a mix of traditional and innovative businesses. These markets often experience high growth rates. However, the lack of infrastructure and development may make investments risky. On the positive, rental prices in these regions tend to increase faster than the national average.
Charleston, Nashville, and Las Vegas are tertiary markets and usually have lower living expenses than primary and secondary markets.
As with any investment, you’ll want to understand the risks and do your due diligence when searching for opportunities in these regions. Here are several steps you can take when investing in tertiary and secondary markets.
Commercial real estate investing is shifting away from major cities to opportunities in second and third-tier urban areas. These markets may meet expectations if you’re looking to find profitable opportunities to satisfy your investors.
Understanding the positive opportunities in primary alternative markets can prove highly profitable when preparing for an upcoming capital raise.
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