Why Focus on Secondary & Tertiary Market for CRE Investment?

by

The commercial real estate (CRE) market after the pandemic has changed a lot. There are now different properties that are gaining more and more popularity while the ones that were on the rise are seeing a great downfall. But for understanding the current market phase, things are complicated.

Those who are trying to invest in the industry for the first time must stay extra careful to avoid any losses or unexpected situations. Undoubtedly the CRE investments now have become a lot more complicated, but things can work out when you research. The situation has led to a greatly increased demand for the secondary and tertiary market. Understanding the market conditions will be useful for you to make a great difference.

Generally, when the investors think about investing in the commercial real estate markets, they generally prefer the cities like New York, Los Angeles, San Francisco, Boston, Atlanta, Phoenix, etc. The attraction to these major cities comes with a population of over 5 million. It is quite understandable.

Besides, they are the center of commerce and the population that provides a great opportunity for large investments, making things a lot less risky. This is the major reason why the investors consider the primary market, which is also known as the tier 1 market.

Undoubtedly it is a primary market that gets the majority of the attention, but they aren’t just the only place the investors look for opportunities. Even the secondary and tertiary markets are now getting undivided attention from the investors. The guide here will help you understand the growing demand and interest in the other markets, which will bring in great opportunities.

 

Secondary market- What is it?

Commonly known as Tier II markets, they are mid-size markets. They are less populated than the major cities, but the population herein is more than in rural areas. Besides this, the secondary markets are not like the large cities, but they still have got all the amenities that are associated with them.

Some of the investors consider the market to be around a population of 500,000 to 5 million, but the others think the population in the areas can be about 2-5 million. In the end, defining a secondary market is based on the growth or the feeling that the areas come under the above-average rate.

All of this comes under the category. Besides, there are great driving factors that include economic drivers like sales volume, investment activity, economic strength, debt availability, occupancy, and market stability. Great examples in the US include Austin, Orlando, Miami, Portland, etc.

 

Tertiary market- What is it?

They are a relatively small real estate market that tends to be more spread out with less population than the primary or the secondary markets, which might not have all the amenities which is enjoyed by the large city residents.

Most of them consider the area with a population of about less than 1 to 2 million. The investors can also consider the employment growth or the population of the market to know about the type of market it is. The tertiary market generally has got great growth rates.

However, they lack because of the unavailability of proper infrastructure, which makes it a riskier investment. Some of the best examples of the tertiary market in the US include Richmond, Last Vegas, etc.

 

Why consider investment in secondary and tertiary markets?

Generally, the eyes are focused on the primary markets because of the life insurance companies, pension funds, and REITs. The secondary and tertiary markets provide a great opportunity for the investors to earn a great return with original investment capital. All of these lead to less competitive strain. Generally, this market provides.

  • Less competition

Generally, the real estate private equity funds or the major REITs are focused on the primary markets, creating a lot of competition in the US. This can greatly increase the price and also reduce the investment cap rate. However, this is not the same in the case of the secondary or tertiary markets.

  • Better value

As secondary and tertiary markets do not have any competitive pressure, they tend to be more financially accessible. This makes it easier for the investors to put in the money and earn a great return.

  • Higher return

Besides being an affordable option for the investors, the secondary and the tertiary market also can help produce a higher return which all the investors want from the investment.

  • Less volatility

When there is a time for the downturn, the secondary and tertiary markets that have got high growth tend to be less volatile. This makes them a great investment even in the investment cycle.

  • Growth potential

The secondary and tertiary market conditions are known to come with a lower cost of living and a reduced real estate supply, which greatly increases a chance of appreciation.

  • Value add opportunity

Saturation in the primary market means that there are few properties that come to the potential for value add projects. When the market starts growing, it provides a great opportunity for growth. This is why investments in the market will bring in great results.

  • Get in early

Those investors who are considering the market based on the growth get in before the real estate values actually begin to rise up, which becomes a great advantage for the investors.

The covid-19 pandemic undoubtedly has shaken things up. When it comes to identifying the markets in areas, the variant growing in the year 2019 suddenly became highly popular in 2020.

In fact, the major metropolitan areas that came with higher ranks, such as New York and San Francisco, saw a great reduction in the rentals as people chose to move to less dense areas because they could afford to rent a home there.

The affordability in the secondary and tertiary markets made the area quite attractive. Thus creating a new opportunity for real estate investors to put in their money and earn a high income. Besides, it also ensures the development of the area to the very best.

 

Investing in a secondary and tertiary market

As an investor, if you are interested in investing in these markets, then there are certain things you need to consider when planning to invest. You need to assess the risk, perform due diligence, and know about things in detail. Besides, there are certain things you need to look into.

  • Rent growth

The promising tertiary and secondary markets generally have higher year-over-year growth when compared to the major marketplaces. Thus it is vital that you look at the numbers to assess investment opportunities and do not forget about the regulations that play a major role here.

  • Job growth

As of now, the growth in the tech sector serves to be the most promising in the market. You must look at the office and growth in such areas that come with tech expansion or innovative industries like green energy. Herein more jobs will guarantee lower vacancy rates.

  • Unique consideration

Each of the market areas comes with something they bring to the table. So it is vital that you compare the investment used in national trends. Also, you need to see what is actually driving the economic growth in the market.

There are different markets where you can consider investing and get a good return. But, identifying the market which will bring in the best can be difficult. Contacting a professional who can guarantee the best to you can be appreciable. So make sure you find a broker or someone who can help you with the same.

This will guarantee you are able to earn passive income. Besides this, the trends in the real estate market keep on changing frequently. You need to have a proper idea about it and keep an eye on all the latest advancements to guarantee things go smoothly and you are able to make the most of your investment choices without any difficulty.

Also, even if you aren’t an experienced investor, it is advised to avoid making the decisions without any thoughts or research during the situation. Research is the key to avoiding any possible loss in the secondary and tertiary markets.

They are coming after great changes, but in the end, it is the growth potential of the market which assures the investors who are putting in money will be able to get a better return.

 

Conclusion

There are a lot of markets and industries which one can consider to put their money. However, as an investor staying alert and identifying the top market that will work great for your investment type and interest is highly important.

This is why taking proper measures and research is the key. You need to understand as what are the top choices you have and how you can make the most of the investment. Besides this, you must also have a clear idea about the ongoing investments.

It is only with the proper research and understanding that you will succeed in the industry. If you are worried, you can consider contacting Private Capital Investors to get help. They have got expert professionals who will assure to stay by your side and guarantee that you are able to get a highly desirable result.

Right from helping you find the lenders to closing the deal, the experts will guide you well throughout the process to make things easier for you.

Want to learn more? Get in touch with us today.

Similar Blog

What is BRRRR? Is this Framework Right for You?

What is BRRRR? Is this Framework Right for You?

Real estate investment has become quite broad. As a result, there are different strategies that people can make use of to improve their earning resources and reduce the risk associated with the process. The strategy works well for experienced and fresher investors to...

Is Commercial Line of Credit Right for Your CRE Projects?

Is Commercial Line of Credit Right for Your CRE Projects?

Real estate investment requires a considerable amount of funding. However, in most cases, the investors lack funds in hand. Thus they look for financing options that will help them to ease the experience and make the investment. One such strategy is a line of credit....

How Your Rental Property can Make Money?

How Your Rental Property can Make Money?

The rental property investment is attractive as it assures a fixed income for years. The rental property investors in the US enjoy the benefit of 30 year fixed mortgage rate. This type of mortgage is very much an outliner compared to the country's other options. Most...

Want to learn more? Get in touch with us today.

Our experienced team is ready to assist with your financing needs.

Address:
2101 Cedar Springs Road Suite 1050 Dallas, TX 75201

Phone:
(972) 865-6205

Email:
info@privatecapitalinvestors.com