Terms like secondary and tertiary real estate markets are often bandied about by real estate experts, but there is no definitive definition. Many classified markets as being primary, secondary or tertiary based on their population. A primary market would be one with a population of five million or more people. A market with two million to five million people is considered secondary under this definition. A tertiary real estate market is one that has under two million people.
A Better Definition?
The narrow definition above, however, doesn’t address the many other variables that define a market. Cap rate analysis, rent growth, job growth, economic drivers and investment activity are just a few examples of the information that should be taken into consideration when defining such markets.
What’s the Value of These Markets?
Regardless of how an investor defines these markets, it’s important to realize that it’s a fluid process that takes into account the constantly- changing real estate market itself. Investors are starting to branch out into these smaller markets that aren’t seeing the effects of saturation yet. This means the real estate deals in these markets aren’t overvalued so their returns are higher.
Because there is less supply coupled with a lower cost of living, the potential for strong growth is there, waiting to be tapped. Secondary and tertiary markets also tend to be less volatile during market downturns. This aspect makes investments in these markets an attractive addition for someone looking for a late entry in the investment cycle.