Real Estate Markets Series: What are Primary, Secondary, and Tertiary Markets
Real estate markets are categorized by the size of the population within a geographic area, as well as the availability of housing, economic activity, and job opportunities. In this series, we will explore what is considered primary, secondary, and tertiary real estate markets, as well as some of the risks and opportunities of each. We will even touch on rural markets.
Chris Carsley and I both grew up in tertiary market areas, and have experience living and working in both primary and secondary market areas. We have invested across all these market types. When exploring these markets, I believe you will develop an understanding of why we continue to be enthusiastic about tertiary markets.
Real estate markets are often categorized by population size.
Primary markets: those with more than 5 million residents.
Secondary markets: 1 to 5 million people.
Tertiary markets: population of 1 million or fewer.
However, the population should not be the only factor to consider when classifying a market.
Real Estate Primary Markets and Gateway Cities
Chicago, IL, USA
Photo by Christopher Alvarenga on Unsplash
A primary real estate market, or gateway city, is a large metropolitan area with a population of more than 5 million people. Most of these cities have a deep economic base, a strong job market, and tend to be popular areas for relocation. Although, the recent pandemic did change the relocation strength for some primary markets, with people choosing to move out due to political and economic factors.
Some of the traditional gateway primary markets are New York City, Los Angeles, Chicago, and San Francisco. However, there are a lot of primary markets in addition to these, for example, Dallas, Houston, Atlanta, Washington D.C., Seattle, and Miami.
An example of a market we would consider primary, but hadn't been in the past, is Phoenix. While the 2020 census put it shy of the 5 million population mark for the metro area, the incredible population and economic growth are just the factors that push this into primary.
Real Estate Secondary Markets
WeWork Office in Nashville, TN, USA
Photo by Brandon Hooper on Unsplash
Secondary markets are areas that generally have populations between 1 million and 5 million people. Examples are Nashville, Raleigh-Durham, Charlotte, Minneapolis, Indianapolis, and Denver. Obviously, there are many others that fit this criteria.
Most of these markets have good economic and job bases, but are not as deep as primary markets. These markets are often more affordable than their primary market counterparts, making them attractive to people looking to move out of the large cities while still having access to good job opportunities.
Secondary real estate markets in many states have shown strong growth for the last few years as more people move away from the expensive primary markets. A few high-growth secondary markets are Austin, Tampa, and Orlando.
Real Estate Tertiary Markets
Bend, Oregon, USA
Photo from https://visitcentraloregon.com/
A tertiary market generally has a population of less than 1 million people. These can also be rural areas and small towns.
There are many tertiary markets which have seen strong growth over the past decade, with an acceleration during the pandemic. We believe one reason to be the rise of remote work, allowing families to choose the benefits of these smaller markets without having to leave behind a well-paying job.
Some famous tertiary markets are Chattanooga, TN; Bend, OR; and Asheville, NC. Other tertiary markets that have seen strong growth in recent years are Boise, Idaho; Sioux Falls, South Dakota; and Columbus, Ohio.
What makes a market rural?
The 1.3 million square-foot Amazon fulfillment center in Republic, Missouri with a population of less than 20,000 people.
Photo courtesy of Bruce Stidham Special to the News-Leader
America is a nation in which many people live in areas that are not clearly rural or urban. Therefore, no matter what the definition, you will have those who strongly advocate moving the line one way or the other. The USDA's What is Rural? lays out the Office of Management and Budget (OMB) approach. There are two interesting ideas here,
Micropolitan (micro) areas, which are non-metro labor-market areas centered on urban clusters of 10,000-49,999 persons.
All remaining counties, often labeled "noncore" counties because they are not part of "core-based" metro or micro areas.
For the OMB, truly rural areas consist of open countryside with population densities of less than 500 people per square mile and places with fewer than 2,500 people.
A market is not more or less risky depending only on it being a primary, secondary, or tertiary market. Each of these types of markets is distinct and carries different considerations for risk and opportunity.
Next, we will explore the risks and opportunities of each market type, starting with primary real estate markets.
