The Northwood Group

Building Partner Investors

Investors Seek Secondary & Tertiary Markets

February 27

 

As the commerical real estate market begins to recover, we are seeing an increase in acquistion activity among investors both institutional and private.  While the majority of investment activity in recent years has been in primary markets, many investors of late have been seeking better returns in secondary & tertiary markets.

It is hard to believe that there is already significant cap rate compression in many markets.  However there remain opportunities for smart money willing to consider markets that maybe haven’t been considered in the past.  Secondary markets typically have higher upside, less competition, and better returns.

There are a few factors that investors want to consider when looking at secondary markets.   Those include population growth, employment growth, financing availability and potential risk related to a local economy’s reliance on any one particular industry.

Utah is recognized as one of the strongest secondary markets in the country.  It maintains very strong historical population growth and employment growth.  Many companies look to the state as a place to do business because of its highly educated workforce as well as its relatively low cost of labor.  Because of these factors institutional investors, strong private investors as well as the smaller 1031 exchange buyers, have found strong rates of return relative to risk.

It is interesting to note that nearly half of the deals that I have been involved in have been with out-of-state buyers.   Utah definitely should be on investors radar as they are looking to place money.