Understanding the 3 Types of Real Estate Markets: Primary, Secondary and Tertiary
At the Katalyst Team, our goal is to help commercial real estate investors maximize their success as they pursue their goals. One thing we always want to encourage investors to do is to keep an open mind about the markets you’re pursuing and to expand your horizons when it comes to making multifamily deals. Some investors start to feel stuck in their local market, so we’re sharing tips and tricks for expanding your portfolio into other geographic areas. Read on to learn more about the different types of real estate markets: primary, secondary and tertiary.
What is a primary market in real estate?
In real estate, primary markets are the largest housing markets in the country. Primary markets, also known as gateway markets, include large, dense population centers with long-established commerce and industry. Popular primary markets in the United States include:
- New York City
- Los Angeles
What is a secondary market in real estate?
Secondary market real estate refers to cities that are slightly smaller than primary markets, with populations between one and five million. Secondary markets have slightly less economic activity, but are typically growing in terms of local commerce, industry and population.
Secondary markets are attractive to individuals because they offer many of the same amenities and features as primary markets — while being more affordable and less densely populated. Some popular secondary markets in the US include:
- Las Vegas
What is a tertiary market in real estate?
The line between secondary and tertiary real estate markets can be a bit blurry, but tertiary markets are typically even smaller than secondary markets, with a more spread out population. They may have a smaller urban center and more suburban areas.
These tertiary cities may have fewer amenities than secondary and primary markets, but they still attract renters and homeowners because of their affordability and quality of life. Some popular and growing tertiary markets include:
- Kansas City
- Des Moines
There are tons of tertiary markets in the United States. Some cities that are even smaller than those listed above could still be considered lucrative tertiary markets to invest in. Cedar Rapids, Iowa City, Waterloo and other growing Iowa communities would be considered tertiary markets of Des Moines — even though Des Moines itself is a tertiary market compared to larger US cities.
Top 3 Benefits of Investing in Secondary and Tertiary Real Estate Markets
One of the main obvious benefits of investing in smaller secondary market real estate opportunities and tertiary real estate markets is affordability. Commercial real estate in primary markets can be prohibitively expensive, especially because primary markets draw a lot of international interest. When it comes to primary markets like NYC and LA, you’re going to be competing not only with local investors, but with individuals across the country and abroad.
It can be very difficult to break into a primary market and find success, so we recommend looking to smaller secondary market real estate options and even tertiary cities.
2. Growth Opportunities
In recent years, there is evidence that many people, especially Millennials, are moving away from larger urban centers. Where do they move to? Smaller secondary and tertiary markets, of course! Cities like Las Vegas, Provo, Austin and Raleigh are among the fastest growing areas in the United States.
This shift, sometimes referred to as an “urban exodus” points to many new opportunities in cities that are smaller but are experiencing rapid growth. Don’t discount a secondary or tertiary market — these cities may be the perfect place to invest in multifamily real estate.
3. Gaining a Point of Reference
Oftentimes, we can look to primary markets to get an idea of what commercial real estate trends will appear in secondary and tertiary markets. This is a huge benefit for those of us who have investments in these smaller markets, as we can get an idea about what’s happening on a larger scale and can make more informed decisions about our investments and our properties.
Investors in primary markets shoulder more risk, in a way, because they have no larger market to look to to predict shifts in commercial real estate trends.
The Katalyst Team is Your Commercial Real Estate Partner in Any Market
As with most aspects of commercial real estate and multifamily property investments, there are no right or wrong answers when it comes to choosing a market. Whether you’re interested in large primary markets, secondary market real estate opportunities or tertiary real estate markets, we want to come alongside you. Reach out to our team if you have any questions about multifamily investment strategies or commercial real estate trends.