May 6, 2016

Secondary and Tertiary Markets

Multifamily investors are increasingly avoiding primary markets and choosing instead to invest in secondary and tertiary markets—a trend that will benefit many mid-sized markets in Texas.


Large real estate investors, especially international investors, have traditionally focused on well-established metropolitan areas like New York, Los Angeles, Chicago, and Boston. These primary or “gateway” markets typically have populations of at least 5 million and offer many stable investment opportunities.

 Investors, however, are increasingly unsatisfied with the low yields in these primary markets. Expensive rents, relatively low cap rates, stubbornly high vacancy rates, and fierce competition combine to create a difficult environment for primary market investments.

 Meanwhile, as the national economy improves, secondary and tertiary markets are becoming increasingly attractive for multifamily investors. Several recent reports suggest that many investors are flocking toward smaller markets to strengthen and diversify their portfolios. In fact, this trend could dominate the commercial real estate world in 2016.

 “2016 is the year of the secondary and tertiary markets,” concluded the Urban Land Institute in the “Emerging Trends in Real Estate” report. “They continue to be more attractive on a relative opportunity basis than some of the gateway cities. … There are a lot of places that people love to live and work; they are manageable environments and have a better value proposition.”

 “Asset selection in secondary markets should pay off as a 2016 strategy,” the report observed.

 Although this trend toward smaller markets has been going on for several years, the pace at which investors are turning toward secondary and tertiary markets has recently increased dramatically. Experts cite property value increases, high investment returns, strong population growth, and more ambitious investment plans as reasons for the recent shift toward investment activity in secondary and tertiary markets. Because foreign investors tend to focus heavily on primary markets, the secondary and tertiary markets are often wide open for domestic investors.

 One additional advantage of investing in secondary and tertiary markets is the potential for value-add opportunities. By acquiring older properties in smaller markets and investing in property improvements, investors are often able to collect strong returns. Plus, the non-primary markets tend to weather market downturns better than larger markets.

 Multifamily developers are also noticing the attractive yields in these smaller markets. So far, however, the construction of new apartment buildings has not yet outpaced demand, meaning investment opportunities should continue to offer attractive yields for investors.

 The bottom line? These trends all suggest a favorable outlook for investors looking to acquire multifamily properties in Texas. Lubbock, Amarillo, Midland/Odessa, Abilene, and other mid-sized Texas markets are ripe with investment potential, due to many of the factors detailed above. 2016 is a promising year for investors looking to add Texas properties to their portfolios.

 CBC Texas Multifamily Group (TMG) will continue to monitor these market trends closely. As a leading provider of multifamily disposition and acquisition services in Texas secondary and tertiary markets, TMG is well-positioned to maximize investment potential. If you would like to learn more about current multifamily investment opportunities in Texas, feel free to contact our team.


Additional Sources:


Emerging Trends in Real Estate 2016, Urban Land Institute, accessed 3/17/16,


Why Investors Are Flocking to Secondary and Tertiary Markets, Colliers International, 8/26/15, accessed 3/17/16,


Secondary Markets Win Multifamily Investors, National Real Estate Investor, 5/28/13, accessed 3/17/16,