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“Secondary Cities” Make Strong Case For Investor Interest In 2016

Published on Thursday - October 15, 2015

It may have taken longer than many expected, but investors have begun to realize that the real estate industry offers a wealth of opportunities in markets across the country. No longer are investors solely focused on trendy markets like New York, Chicago and Washington, D.C. While these cities continue to generate interest, a new study suggests that enthusiasm towards real estate investing is transitioning towards secondary, and perhaps even tertiary cities. For what it is worth, 2016 is shaping up to be a year of movement. At the very least, trends look as if they will give everyone a wide array of investing choices, no matter how big or small.

According to PricewaterhouseCoopers (PwC) and a survey conducted by the Urban Land Institute, smaller markets “continue to be more attractive on a relative opportunity basis than some of the gateway cities. Gateway cities, we know, are places people want to be, but we are thinking of cities like Nashville, Charlotte, Indianapolis, Louisville, Portland, Austin, Raleigh, Durham. These cities continue to attract lots of people. There are a lot of places people love to live and work; they are manageable environments and have a better value proposition.”

General sentiment, both from an investor’s perspective and typical homebuyers, seems to favor growth potential. The secondary and tertiary markets foster an environment where the economy is adding jobs and new supply is relatively tame by historical standards.

However, people are not turning to these housing markets solely because they are attractive. Some of the largest markets in the country have become so highly valued that the average domestic investor is better off looking elsewhere.

The majority of people shifting their attention away from so-called gateway cities appear to be focusing on Dallas/Fort Worth, TX. According to the Emerging Trends in Real Estate survey, Dallas/Fort Worth climbed four spots from last year’s survey to take over the top spot.

Not surprisingly, impressive employment growth is the reason Dallas/Fort Worth was able to claim the top spot. Strong job growth looks sustainable, and should continue to drive the economy. Not only that, but the cost of doing business – and living for that matter – is too attractive for businesses and homeowners to ignore. For all intents and purposes, Dallas/Fort Worth has really benefited from an influx of corporate relocations.

Those that took part in the survey were quick to point out the potential offered by both investment and development projects. And while overbuilding is still at the front of everyone’s mind, the sentiment is that new construction is justified for its current trajectory. Of course, these factors are shared with almost every other city that made the list. The remaining top 10 markets to watch in 2016 are as follows:

Experts have suggested that the recent movement between the top ten cities on this list is related to current price trends rather than their relative attractiveness as a whole.

With secondary and tertiary markets offering investors more in the coming year, it is hard to not get excited for the entire real estate industry as a whole. No longer will investors have to put up with the impossible prices in New York, or availability in San Francisco. They simply need to turn to cities like Dallas/Fort Worth and Austin, where opportunities abound. As one lending officer in the PwC survey put it, “the next 24 months look doggone good for real estate.”

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