The Rise of Secondary and Tertiary Markets: Where Investors Are Finding Hidden Value

As real estate in major metropolitan areas becomes increasingly expensive and competitive, investors are shifting their focus to secondary and tertiary markets. Rod Khleif, a real estate expert who has owned or managed over 2,000 properties, recognizes that these emerging markets offer opportunities for growth, affordability and strong returns that are often overlooked in favor of primary cities. Several factors, including demographic shifts, remote work trends and evolving economic landscapes, drive the rise of these markets.

By understanding the potential in secondary and tertiary markets, investors can capitalize on opportunities that provide strong returns while mitigating risks associated with oversaturated primary markets.

Defining Primary, Secondary and Tertiary Markets

Primary markets—such as New York, Los Angeles and San Francisco—have long been the focus of institutional and private investors. However, secondary and tertiary markets are gaining attention as affordability and demand trends shift.

Secondary markets are mid-sized cities with growing populations and economic activity. Examples include Austin, Nashville and Charlotte. These cities have strong infrastructure, job growth and increasing real estate demand, making them attractive alternatives to primary markets.

Tertiary markets are smaller cities and towns that have emerging economic potential. Examples include Boise, Chattanooga and Des Moines. These areas may have lower transaction volumes but offer affordability, growth potential and less market saturation.

Why Investors Are Turning to Secondary and Tertiary Markets

Lower Costs and Higher Affordability

One of the most significant advantages of investing in secondary and tertiary markets is affordability. Property prices and construction costs are lower than in primary markets, allowing investors to enter at a lower cost basis and achieve higher cash-on-cash returns. Rental properties in these areas also tend to have more attractive price-to-rent ratios, making them ideal for cash-flow-focused investors.

Tax incentives and local government policies in secondary and tertiary markets often encourage real estate investment. These incentives can reduce property taxes, provide tax credits for renovations and even offer grants for business development. Savvy investors who take advantage of these policies can further improve their return on investment while strengthening the local economy.

Stronger Yield Potential

Secondary and tertiary markets often provide better cap rates than primary markets. While top-tier cities see compressed cap rates due to high competition, smaller markets maintain more attractive return profiles. Investors who acquire assets in growing secondary and tertiary locations can benefit from both stable rental income and long-term appreciation.

Furthermore, the lower acquisition costs of properties in these markets allow investors to diversify their portfolios more effectively. Instead of purchasing a single high-priced asset in a primary market, investors can distribute their capital across multiple properties in secondary and tertiary markets, spreading risk while increasing opportunities for steady cash flow.

Population and Job Growth Trends

A key driver of real estate demand is population growth, which is increasingly shifting toward secondary and tertiary markets. The cost of living in major cities has driven many residents to seek more affordable alternatives. Additionally, businesses are relocating their headquarters and expanding operations into these markets, bringing job opportunities and increasing demand for housing. Cities such as Raleigh, Tampa and Indianapolis have seen significant economic growth due to corporate relocations and business-friendly environments.

Infrastructure improvements also play a crucial role in making these markets more attractive. Cities investing in better public transportation, road networks and high-speed internet access are better positioned to attract residents and businesses alike. Investors should pay close attention to infrastructure projects in secondary and tertiary markets, as they are often a strong indicator of long-term growth potential.

Remote Work and Lifestyle Shifts

The rise of remote work has made secondary and tertiary markets even more appealing. Employees are no longer tied to major cities for job opportunities and are choosing locations based on affordability, quality of life and amenities. Investors who recognize these migration patterns can strategically invest in residential and commercial properties that cater to the influx of new residents.

Additionally, as more companies adopt hybrid work models, demand for co-working spaces and flexible office arrangements in smaller cities is increasing. Investors in commercial real estate should explore opportunities to develop or repurpose properties to accommodate this growing trend.

Key Investment Opportunities in Secondary and Tertiary Markets

Multifamily Housing

With increased migration to secondary and tertiary markets, the demand for rental housing is growing. Multifamily developments, particularly in walkable and well-connected neighborhoods, offer strong investment potential. Investors who focus on workforce housing—affordable rental units for middle-income earners—can capitalize on high occupancy rates and long-term rental demand.

Commercial Real Estate

Retail, office and industrial properties are also seeing increased activity in secondary and tertiary markets. As businesses relocate, demand for commercial space grows. Additionally, the expansion of e-commerce has driven demand for industrial and warehouse properties in smaller cities where land is more affordable.

Build-to-Rent Communities

A growing trend in secondary and tertiary markets is the rise of build-to-rent (BTR) communities. These developments cater to renters who prefer the amenities of single-family living without the financial burden of homeownership. Investors are increasingly developing and acquiring BTR properties to meet the demand for high-quality rental options in growing markets.

Challenges and Considerations

While secondary and tertiary markets offer attractive investment opportunities, they also come with unique challenges.

Market Liquidity: Smaller markets have lower transaction volumes, meaning that properties may take longer to sell compared to primary markets.

Limited Infrastructure: Some tertiary markets lack the infrastructure and amenities of larger cities, potentially affecting long-term growth potential.

Economic Stability: Investors should assess the economic stability of smaller markets, ensuring that job growth and business expansion support real estate demand.

The Future of Secondary and Tertiary Market Investing

As affordability challenges persist in primary markets, the appeal of secondary and tertiary markets will continue to grow. Investors who recognize these trends early can position themselves to benefit from rising property values, increased demand and evolving economic landscapes.

Additionally, government initiatives, infrastructure improvements and business incentives in secondary and tertiary cities will further enhance their investment potential. By strategically selecting markets with strong growth indicators, investors can unlock hidden value and build long-term wealth.

As more capital flows into these emerging locations, they will continue to evolve into prime investment destinations with strong growth potential. Rod Khleif points out that “the best deals aren’t always listed—they’re found through relationships.” By cultivating strong connections with local brokers, developers and business leaders, investors can gain access to off-market deals and position themselves ahead of the competition in these emerging markets. Additionally, those who stay informed about local government initiatives and infrastructure developments will be better equipped to make strategic investment decisions that yield long-term success.

The rise of secondary and tertiary markets is transforming the real estate investment landscape. Investors who adapt to shifting demographic and economic trends can take advantage of high-yield opportunities while diversifying their portfolios. Whether through multifamily housing, commercial real estate or build-to-rent developments, these markets provide a compelling alternative to traditional primary city investments.