The COVID-19 pandemic dramatically reshaped the way we work, leading to a surge in remote work and flexible office arrangements. As a result, the commercial real estate market, particularly the office sector, has undergone significant transformations.

One of the most notable changes has been the evolution of secondary markets in office real estate.

Understanding Secondary Markets

Prior to the pandemic, primary markets, typically located in central business districts, were highly sought after by corporate tenants. However, the pandemic accelerated a trend toward decentralization as companies realized the benefits of suburban locations, lower costs, and improved amenities.

Secondary markets have become increasingly attractive to tenants, often characterized by lower rents, more abundant space, and better access to amenities like outdoor spaces and green areas.

These refer to locations outside primary urban centers where businesses lease office space. Traditionally, these areas were seen as less desirable, but recent trends show a dramatic shift. According to a report by JLL, leasing activity in secondary markets shows an upward trend and has been growing by 8% quarter-over-quarter.

Many companies are now looking to secondary markets for cost-effective options, flexibility, improved amenities, and access to talent.

The Post-Pandemic Shift and Factors Driving the Change

The pandemic forced businesses to rethink their real estate strategies. With remote work becoming the norm, companies are no longer tied to expensive downtown office spaces. Instead, they are exploring opportunities in suburban and secondary markets where leasing costs are lower.

A survey from Gallup noted that 40% of companies planned to reduce their office footprint in primary markets. This trend is particularly noticeable among tech firms and startups, which are increasingly seeking flexible leasing options outside major urban centers.

Several factors contribute to the rise of secondary markets in office real estate:

  • Cost-Effectiveness: Businesses can significantly reduceoperating costs by leasing space in secondary markets, allowing them to allocate resources elsewhere.
  • Hybrid Work Models: Many companies are adopting hybrid work arrangements, which has raised the demand for flexible office space. Secondary markets offer a variety of options, from co-working spaces to short-term leases, to caterto this need.
  • Quality of Life: Employees are increasingly prioritizing work-life balance. Secondary markets often provide a better quality of life with more affordable housing, green spaces, and less congestion, making them attractive to talent​.

Challenges and Opportunities

While the evolution of secondary markets presents numerous opportunities, it also poses challenges. Some of the key challenges include:

  • Infrastructure:Secondary markets may require investments in infrastructure, such as transportation and amenities, to attract and retain tenants.
  • Talent Attraction:Attracting and retaining top talent in secondary markets can be more difficult than in primary markets.
  • Economic Volatility:Secondary markets may be more susceptible to economic downturns due to their reliance on a diverse range of industries.
  • Risk of Saturation: As more companies move into these areas, there’s a risk of oversaturation, which could lead to increased competition and fluctuations in rental prices.

Despite these challenges, the long-term outlook for secondary markets in office real estate remains positive. As companies continue to adapt to the new normal of work, these markets are well-positioned to benefit from the growing demand for flexible, affordable, and amenity-rich office space.

The Future of Office Real Estate

The evolution of secondary markets represents a major shift in the office real estate landscape. As companies continue to embrace flexibility and cost-efficiency, these markets are likely to play an increasingly critical role in the commercial real estate ecosystem.

The long-term impact of this shift could redefine the concept of office space, blending traditional leasing dynamics with modern work preferences.

For investors and businesses, these markets offer exciting opportunities but also require a strategic approach to maneuver in the evolving landscape.

If you’re looking to explore opportunities in secondary markets or need expert guidance on your commercial real estate investments, Cindy Hopkins Commercial Real Estate is here to help. Contact us today to discover how we can support your real estate goals in this changing market!