Not too long ago, secondary metros were viewed as having limited economic opportunity, unlikely to ever outpace housing and property demands in big cities (primary markets) like New York, Los Angeles, Boston, or Atlanta. While secondary metros had started growing in popularity over the last several years, the onset of the COVID-19 pandemic accelerated the trend. Today, big cities are facing a decline in renters and housing demands, while secondary metros are experiencing incredible growth.
What is a Secondary Metro?
Secondary metros, also called secondary cities and secondary markets, are cities that are smaller than the largest cities in the United States. They are not as populated or as dense as primary markets. Secondary markets are also qualified by their growth potential. For example, they feature a sizable population with a strong job market and solid demand for housing.
Examples of secondary metros (many in the south and midwest) include:
- Greenville, NC
- Little Rock, AR
- Dallas, TX
- Durham, NC
- Toledo, OH
- Orlando, Fl
- Nashville, TN
- Austin, TX
- Kansas City, MO
- St. Louis, MO
- Portland, OR
Compared to primary metros, these cities offer lower cost of living, boast high quality of life, and many offer some of the nation’s top public school systems. Many of these cities have college communities, making them hubs for entertainment, cultural spaces, and a diverse range of restaurants.
The Pandemic Accelerated Growth of Secondary Metros
It’s a tale everyone is familiar with by now. The pandemic hit and everyone was forced to stay home as much as possible. Home became many people’s office, restaurant, child care center, school, gym, place to sleep, and place to relax. This reality hit people living in primary metros (most of whom live in homes less than 1,000 square feet) differently than anywhere else in the country.
Pre-COVID, big city dwellers justified small living spaces and exorbitant rent or mortgages with the fact that they needed to live near their jobs. Plus, the majority of their lives took place outside of the home. When forced to stay indoors, and with the option to work remotely, many people began looking to more affordable secondary markets. The appeal of more space, a better quality of life, a lower cost of living, led to many Gen Z and Millennial individuals leave cities.
This doesn’t just impact the housing and rental market. A decrease in the population and the ability to work remotely also negatively impacts demand for office and commercial space.
Who is Moving to Secondary Metros?
Gen Z has been the fastest-growing segment of renters over the last decade. Gen Z are choosing secondary metros in higher numbers than Millenials, especially over the last year. They are entering the job market during a time of enormous uncertainty, and they view the high rents of major metros as risky.
According to the most recent information from the National Apartment Association, Gen Z renters jumped by 36% in 2020 compared to 2019, with rentals not jumping in places like New York, Atlanta, Houston, Los Angeles, or San Francisco. The same survey found that 44% of Gen Z respondents said they’d prefer to live in a vibrant suburb over a large city.
As for Millenials, a large percentage of this group is coming into the stage of their lives where they have more financial stability and increased buying power. Millennials have been the largest group of home buyers over the last year, accounting for 61% of purchase loans in 2020 according to Ellie Mae Millennial Tracker.
The LightBox Investor Sentiment Report: 2021 Outlook found that this movement toward secondary markets is making them increasingly attractive to investors. A strong indicator for this was data showing that environmental due diligence conducted before commercial property deals in Q4 2020 surpassed Q4 in 2019. Strong population growth coupled with lucrative job opportunities supports secondary market growth, and has a positive impact on commercial real estate expansion and development.
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LightBox creates and distributes Sentiment Reports as part of our deep commitment to our clients’ success. The research presented is based on our own internal analytics along with surveys and interviews with industry professionals to identify and understand trends in the current real estate market.
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Category Commercial Real Estate