The commercial real estate industry has changed in unexpected ways since the pandemic hit in March 2020. The transaction value dropped significantly, as expected, before rising again in 2021. However, much of the recovery surprisingly happened in the secondary markets.

They recovered faster than the major cities, forcing experts and economists to determine the factors driving this trend. Thankfully, the drivers became clear reasonably quickly, leading to further discussions about the future of commercial real estate investments.

This blog will highlight a few critical statistics and address why commercial real estate is thriving in secondary markets.

Key Statistics

Below are a few statistics that provide evidence that commercial real estate is thriving in secondary markets:

  • Secondary markets have a positive absorptionrate for industrial and multifamily units even though major cities had negative absorption for the same period.
  • Office markets are up in Tucson (6.2%), Naples (5.6%), and Fort Meyers (5.3%), but they are down in San Francisco (-4.4%) and New York (-2.8%).
  • The industrial market in secondary markets absorbed nearly 113 millionsquare feet in 2021’s second quarter.

These statistics prove that the change is happening, and investors need to move accordingly.

Reasons Why Commercial Real Estate is Thriving in Secondary Markets

There was limited scope for confusion because the reasons why commercial real estate is thriving in secondary markets are apparent. Following are the primary factors driving this change:

1. Resident Migration for Lower Living Costs

The cost of living has been rising in major cities for the past two decades. Although people stayed to avoid losing their city jobs, the higher expenses have made it difficult to save. Things came to a head when the pandemic forced several people out of employment, and the economy suffered.

People could no longer afford the high rent cost and moved to smaller cities. New York, Los Angeles, Chicago, etc., have seen massive negative migration, while several secondary markets like Charlotte, Fayetteville, and Austin have witnessed a positive trend.

2. Businesses Opening Up Operations

Resident migration, lower taxation, and lower operational cost have also led several businesses to open offices in secondary markets. This strategy has further strengthened people’s willingness to move to smaller cities, knowing they will get similar commercial opportunities.

3. Greater Flexibility for Change

Secondary markets offer businesses and residents greater flexibility to change. They are currently in the process of becoming stronger economies, so there is ample potential for changing property structures to meet modern and futuristic trends.

The same process is challenging in established commercial markets, where such changes will likely disrupt operations and lead to higher net costs.

4. Lower Commuting Time

Smaller cities are less congested with traffic, so commuting time is much lower. The pandemic has made people especially conscious of their time and increased their desire to have a work-life balance.

Therefore, the lower commute time has become an attractive feature, pulling them away from bigger cities.

Final Thoughts

The rising cost of living in major cities, economic crisis, and lower cost of business operations are the leading reasons why commercial real estate is thriving in secondary markets.

Don’t hesitate to get in touch with the CHRE team to invest in commercial real estate in Rio Grande Valley, Texas. We have been working in the industry for several years and find the best deals for your portfolio.