Secondary Markets offer commercial real estate investors opportunity with better returns
The U.S. real estate recovery is set to continue into 2014, as investors increasingly look beyond some traditionally popular markets for higher yields in secondary markets, according to Emerging Trends in Real Estate 2014, co-published by PwC US and the Urban Land Institute (ULI). As opportunities in core markets become harder to find and the best assets more expensive, investors will look to secondary markets for higher returns.
Cities that fall into Secondary Market category:
Atlanta, Austin, Baltimore , Charlotte, Cincinnati, Cleveland, Columbus, Dallas, Denver, Detroit, Houston, Indianapolis, Jacksonville, Kansas City, Las Vegas, Memphis, Milwaukee, Minneapolis, Nashville, Norfolk, Orlando, Philly Metro, Phoenix, Pittsburg, Portland, Raleigh/Durham, Sacramento, Salt Lake City, San Antonio, San Diego, Seattle, South Florida, St Louis and Tampa
– According to a CCIM Institute article
Investment opportunities in secondary markets are shaping up to have more potential than their primary market counterparts, according to a Siguler Guff report.
“While most investors seek increasingly expensive core assets in a handful of locations, they often overlook the opportunities offered by underpriced properties in recovering markets elsewhere,” says James Corl, managing director at Siguler Guff.
Corl suggests timing as one of the most important factors in commercial real estate investment. The right opportunity requires knowledge of the future flow of investment capital and where that capital is heading once the market turns, according to the report. Investing in hot markets at the wrong time could result in inflated price tags and loss of capital when the market goes sour.
In the current climate, three-quarters of investors are seeking opportunities among one-quarter of the assets. Corl advises investors to seek out secondary markets with low prices where one-quarter of the money is seeking three-quarters of the assets.
“In a year or two, investors are likely to consider places such as Atlanta, where we have bought properties that are being leased up,” Corl says. “Warehouses in the U.S. southeast are another area that appears attractive now.”