“Investors need to consider if they're in a secondary or tertiary market that's heavily tied to a declining industry or a heavily cyclical industry,” he explains, “or if it's one with good healthcare, tech, educational systems, energy—the types of industries and fundamentals that have a solid workforce, quality of life, etc.”

Even in large metropolitan areas, suburbs still contain a large share of existing jobs. In the top 40 metro areas, the Urban Land Institute reports, 84% of all jobs are outside the center-city core. ULI concludes this bodes well for the future of suburbs and predicts the configuration—and reconfiguration—of suburban commercial real estate will play a role in building on the existing employment base.

“More 'suburban downtowns' are densifying, especially if they have a 20-minute transportation link to center-city jobs, Main Street shopping and their own employment generators,” the ULI report reads. “These suburbs exhibit many of the attributes of an 18-hour city,” while less costly than the densest coastal markets. Three out of four Millennials preferred such close-in locations if they considered suburban choices, according to ULI.

ULI offered some working examples of cities outside the core that make attractive investments. San Antonio, Dallas, Houston, San Diego and Phoenix have suburban-dominated job growth, while Denver's growth marginally favors its suburbs. Chicago, meanwhile, is seeing suburban office building vacancies decline.

Andrew Nelson, chief economist at Colliers International, cites significant upside in 18-hour cities such as Atlanta, Austin, Charlotte, Dallas, Denver, Nashville and Seattle because they're poised for superior growth in employment and gross metro product. “There has been much more moderate cap rate compression in these areas than in traditional gateway cities, providing the opportunity for greater yields to those priced out of core markets,” Nelson tells GlobeSt.com. “As the economy has demonstrated stability and interest rates remain near historic lows, investors flushed with cash have shown an increased tolerance for risk, and grown more comfortable in secondary, tertiary and suburban markets.”

Francis Greenburger, CEO and founder of Time Equities, tells GlobeSt.com the scenario constantly changes. He has his eyes on Midwest cities like Chicago and Detroit. Pumper, though, is seeing acquisitions in Southeast cities like Birmingham AL; Memphis and Nashville; Greenville, SC; and Tampa, Orlando and Jacksonville, FL.

“Markets have always been viewed based on the size of their MSA, so larger cities were considered primary,” Ella Shaw Neyland, president of Steadfast REIT, tells GlobeSt.com. “But today, markets are being viewed by the rate that jobs are being created since employment is a major driver of demand for apartments.”

Neyland points to Austin, which has some of the highest US job growth driven by light manufacturing, technology, financial services and research—yet it has only about 1.8 million residents. “Austin was once considered a secondary market, but by all the important metrics to a successful apartment community, it's ground zero,” she says. “People need to rethink the old standards.”

As for Paul Ahmed, senior vice president at Walker & Dunlop, when he thinks of primary and tertiary markets in Florida, he sees Fort Myers as a tertiary market and Orlando, Miami and Jacksonville as primary markets. “Orlando continues to be a favored market,” he tells GlobeSt.com. “In tertiary markets, lenders will look at and loan on them, but maybe they will do it more conservatively. Some won't loan there at all.”

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.

ORLANDO—With competition and pricing at astronomical levels in core markets across the country—and with no signs that demand will slow—even the most conservative players are looking at secondary and tertiary markets for yield. Consider the following: Every major property sector has eclipsed peaks of 2007, according to USAA Real Estate Co.

While the turbulence of the global financial crisis in 2008 drove investors into the safety of core markets, the recent calm is now driving them to venture outside the core, suggests Morgan Stanley's report, “The Odyssey.” With persistently low US Treasury yields, historically low near-term volatility in commercial real estate returns and low capitalization rates in primary markets, according to Morgan Stanley analysts, investors are hearing the faint sound of a beautiful song of higher yields coming from non-core markets.

One of the biggest questions facing core investors today is whether they should move up the risk curve and deploy capital into secondary markets. The bottom line is clear: It depends on the secondary markets and how soon you get in. Top performers in secondary markets are seeing some stiff competition.

Steve Pumper, executive managing partner of Transwestern's Capital Markets and Asset Strategies Group, warns GlobeSt.com readers to be thoughtful about which markets they're pursuing and what businesses are in those submarkets. His advice is to focus on industries that will be successful over the next five to 10 years.

“Investors need to consider if they're in a secondary or tertiary market that's heavily tied to a declining industry or a heavily cyclical industry,” he explains, “or if it's one with good healthcare, tech, educational systems, energy—the types of industries and fundamentals that have a solid workforce, quality of life, etc.”

Even in large metropolitan areas, suburbs still contain a large share of existing jobs. In the top 40 metro areas, the Urban Land Institute reports, 84% of all jobs are outside the center-city core. ULI concludes this bodes well for the future of suburbs and predicts the configuration—and reconfiguration—of suburban commercial real estate will play a role in building on the existing employment base.

“More 'suburban downtowns' are densifying, especially if they have a 20-minute transportation link to center-city jobs, Main Street shopping and their own employment generators,” the ULI report reads. “These suburbs exhibit many of the attributes of an 18-hour city,” while less costly than the densest coastal markets. Three out of four Millennials preferred such close-in locations if they considered suburban choices, according to ULI.

ULI offered some working examples of cities outside the core that make attractive investments. San Antonio, Dallas, Houston, San Diego and Phoenix have suburban-dominated job growth, while Denver's growth marginally favors its suburbs. Chicago, meanwhile, is seeing suburban office building vacancies decline.

Andrew Nelson, chief economist at Colliers International, cites significant upside in 18-hour cities such as Atlanta, Austin, Charlotte, Dallas, Denver, Nashville and Seattle because they're poised for superior growth in employment and gross metro product. “There has been much more moderate cap rate compression in these areas than in traditional gateway cities, providing the opportunity for greater yields to those priced out of core markets,” Nelson tells GlobeSt.com. “As the economy has demonstrated stability and interest rates remain near historic lows, investors flushed with cash have shown an increased tolerance for risk, and grown more comfortable in secondary, tertiary and suburban markets.”

Francis Greenburger, CEO and founder of Time Equities, tells GlobeSt.com the scenario constantly changes. He has his eyes on Midwest cities like Chicago and Detroit. Pumper, though, is seeing acquisitions in Southeast cities like Birmingham AL; Memphis and Nashville; Greenville, SC; and Tampa, Orlando and Jacksonville, FL.

“Markets have always been viewed based on the size of their MSA, so larger cities were considered primary,” Ella Shaw Neyland, president of Steadfast REIT, tells GlobeSt.com. “But today, markets are being viewed by the rate that jobs are being created since employment is a major driver of demand for apartments.”

Neyland points to Austin, which has some of the highest US job growth driven by light manufacturing, technology, financial services and research—yet it has only about 1.8 million residents. “Austin was once considered a secondary market, but by all the important metrics to a successful apartment community, it's ground zero,” she says. “People need to rethink the old standards.”

As for Paul Ahmed, senior vice president at Walker & Dunlop, when he thinks of primary and tertiary markets in Florida, he sees Fort Myers as a tertiary market and Orlando, Miami and Jacksonville as primary markets. “Orlando continues to be a favored market,” he tells GlobeSt.com. “In tertiary markets, lenders will look at and loan on them, but maybe they will do it more conservatively. Some won't loan there at all.”

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.